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Markets volatile on Greek debt talks, IMF funding

Markets volatile on Greek debt talks, IMF funding

Markets were volatile on Wednesday as Greece prepared to resumed talks on a crucial debt write-off deal and the International Monetary Fund said it would raise new money to increase its financial firepower.
Following a breakdown of talks last Friday, investors remain nervous about what may happen in discussions between Greece and the Institute of International Finance, which represents private sector bondholders.
The hope is that an agreement will be reached to reduce the country's crushing debt burden. The fear is that the talks fail and Greece won't be able to service its debts and be forced to default, potentially triggering more turmoil in global markets.
"It is the negotiations on the voluntarily write down of Greek government debt that we are watching most closely," said Nick Bennenbroek, an analyst at Wells Fargo Bank.
Last October, Greece's partners in the eurozone sanctioned a deal whereby Greece's creditors agree to take a cut in the value of their Greek bond holdings to help lighten the country's debt burden. The deal with private investors aims to reduce Greece's debt by (EURO)100 billion ($127.9 billion) by swapping private creditors' bonds for new ones with a lower value. It is a key part of a (EURO)130 billion international bailout, the second one for Greece.
Greece remains the focus in the markets and following recent solid advances, stocks appeared more cautious.
In Europe, the CAC-40 in France closed down 0.2 percent at 3,264.93 while Germany's DAX rose 0.3 percent to 6,354.57. The FTSE 100 index of leading British shares ended 0.2 percent higher at 5,702.37.
In the currency markets, the euro remained well-supported as it rebounded off 17-month dollar lows. It was trading 0.6 percent higher at $1.2814.
In the U.S., the Dow Jones industrial average was up 0.3 percent at 12,522.26 while the broader Standard & Poor's 500 index was 0.5 percent higher at 1,299.51.
Markets were higher earlier in the day on speculation, later confirmed, that the IMF would raise up to $500 billion to fulfill its $1 trillion financing needs in coming years. The new money to be raised includes $200 billion that European countries recently agreed to hand the IMF.
"At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations with the Fund's membership have been completed," a Fund spokesman said.
If the IMF were to have its resources increased by governments raising their contributions, then it would have more money available to potentially help Europe in dealing with its debt woes.
"More resources means more liquidity which I guess is good for asset prices in the short term, or at least reduces threat of systemic risk in the interim," said Neil MacKinnon, global macro strategist at VTB Capital.
Earlier Asian stock markets largely continued their recent advance. Japan's Nikkei 225 index rose 1 percent to close at 8,550.58 while Hong Kong's Hang Seng added 0.3 percent to 19,686.92.
However, mainland Chinese shares fell on profit-taking after a brisk day of trade Tuesday that saw the biggest gains in 27 months. The Shanghai Composite Index lost 1.4 percent to 2,266.38, while the Shenzhen Composite Index dropped 2.7 percent to 837.40.
Investors cheered Tuesday's news out of China that the world's second-largest economy slowed less dramatically in the fourth quarter than feared _ but still enough of a slowdown to persuade investors that Beijing will pursue a pro-growth monetary policy.
"People have been buying stocks in anticipation of a relaxation in monetary policy by the Chinese government," said Derek Cheung, chief investment officer at Neutron INV Partners Ltd. in Hong Kong. "The market expects this around Chinese New Year. If China doesn't loosen around the new year, the market may come under pressure." The holiday begins Jan. 23.
With Europe seemingly sliding back toward recession and the U.S. recovery still fairly moderate by historical standards, China's performance is important to shore up the global economy and market sentiment, especially when investors are fretting about a potential Greek default that could further roil financial markets.
The World Bank was the latest organization to issue a warning about the global economy. In an economic update, the Washington D.C.-based international organization cut its growth forecast for developing countries this year to 5.4 percent from 6.2 percent and for developed countries to 1.4 percent from 2.7 percent. For the 17 countries that use the euro currency, it forecast a 0.3 percent from the previous estimate of 1.8 percent growth.
Despite the World Bank's warning, oil prices remain supported on China's positive growth news _ benchmark crude for February delivery was up 26 cents at $100.97 a barrel.
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Pamela Sampson in Bangkok contributed to this report.


Updated : 2021-10-24 11:44 GMT+08:00