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Markets rally on hopes IMF will get more money to fight Europe's debt crisis
LONDON (AP) ' Markets advanced further Wednesday on hopes the International Monetary Fund would get more money and as Greece resumes discussions with private creditors to get them to agree to reduce the value of their holdings of Greek debt.
Following a breakdown of talks last Friday, investors remain nervous about what may happen, though sentiment has been shored up somewhat by comments made late Tuesday from Christine Lagarde, the International Monetary Fund's managing director, that the Washington D.C.-based institution was looking at ways to increase its financial firepower, partly to deal with Europe's debt crisis.
If the IMF were to have its resources ramped up 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.
Europe's debt crisis started in Greece over two years ago and investors will be looking to see if the country can negotiate a deal with its creditors that will ease the burden of its crushing debts.
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, known as the Private Sector Involvement, or PSI, aims to reduce Greece's debt by euro100 billion ($127.9 billion) by swapping private creditors' bonds for new ones with a lower value. It is a key part of a euro130 billion international bailout, the second one for Greece.
Without a deal with its private creditors, Greece has been told it won't get the next installment of money due from its first bailout. Without that money, Greece would be unable to pay a big bond redemption in March, potentially triggering a chain of events that could derail the global economic recovery and cause financial mayhem in Europe.
"All eyes will once again be on Greece today as talks restart with the IIF today on the voluntary restructuring of the debt with private creditors," said Michael Hewson, markets analyst at CMC Markets.
In Europe, the CAC-40 in France was up 0.4 percent at 3,284 while Germany's DAX rose 0.5 percent to 6,365. The FTSE 100 index of leading British shares was steady at 5,695.
In the currency markets, the euro remained well-supported as it rebounded off 17-month dollar lows. It was trading 0.7 percent higher at $1.2832.
Wall Street was poised for a steady open later though a run of economic data may well alter expectations ' Dow futures were up 0.4 percent at 12,469 while the broader Standard & Poor's 500 futures rose 0.5 percent to 1,295.
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 57 cents at $101.28 a barrel.
Pamela Sampson in Bangkok contributed to this report.