Euro in focus as European stocks rise modestly

LONDON: European stock markets rose modestly Tuesday as investors awaited the next developments in the Greek debt crisis and kept a close eye on currencies following big drops in the value of the euro as well as the British pound.

The FTSE 100 index of leading British shares was up 17.49 points, or 0.3 percent, at 5,423.43 while Germany's DAX rose 15.02 points, or 0.3 percent, to 5,728.53. The CAC-40 in France was 6.22 points, or 0.2 percent, higher at 3,775.76.

The main focus in the markets continues to be the Greek debt crisis and whether Germany and France are prepared to offer Greece a financial lifeline to help it borrow the money it needs in the international bond markets.

In return Greece would have to make serious budget cuts to bring its deficit down — the new EU Monetary Affairs Commissioner Olli Rehn urged Greece to unveil further reductions soon and Greek Prime Minister George Papandreou is set to discuss the next measures with his cabinet on Wednesday.

"The markets are waiting on details of both the Greek bailout plan and fresh budget cuts but the risk is that the eurozone debt crisis rumbles on without any quick and easy resolution," said Neil Mackinnon, global macro strategist at VTB Capital.

All this uncertainty surrounding Greece continues to hit the euro — German Chancellor Angela Merkel warned Monday that the euro in a "challenging phase" and that it was important that the markets regained confidence in the single currency.

Some semblance of stability appears to have emerged Tuesday as the euro clambered up from a nine and a half month low of $1.3435 to trade only 0.2 percent lower on the day at $1.3524.

Another currency in the doghouse is the British pound, which on Monday slid around 4 cents to its own nine and a half month low of $1.4784 as investors fretted about the seemingly growing possibility that the upcoming general election will not lead to any political party being able to form a government on its own.

Opinion polls over the last couple of weeks have shown the Conservative Party lead over the governing Labour Party falling to single digits — given the British electoral system, the Conservatives have to win by a substantial margin to form a government on their own, while the Labour Party could actually lose the popular vote and still emerge as the largest party.

The worry in the markets is that economic policy in a coalition would not be as clear-cut as under a single party government. The worry is amplified if a coalition cannot be concluded and a second election looms.

"The increasing likelihood of a hung parliament emerging from the wreckage of the upcoming general election together with worries over future fiscal competence, prudence, of deficits and of debt are reason enough for the current sterling crisis," said Howard Wheeldon, senior strategist at BGC Partners.

Elsewhere, the markets are awaiting interest rate decision later from the Bank of Canada ahead of Thursday's meetings of the European Central Bank and the Bank of England.

Looming on the horizon is also Friday's U.S. nonfarm payrolls report for February — the U.S. jobs report often sets the market tone for a while after its release.

There's not much on the U.S. economic calendar later and Wall Street is expected to open flat — Dow futures were up 7 points, or 0.1 percent, at 10,392 while the broader Standard & Poor's 500 futures rose 0.7 point, or 0.1 percent, to 1,115.30.

U.S. stocks enjoyed a healthy advance on Monday after solid economic data helped shore up sentiment after a couple of weeks when most of the economic newsflow appeared to disappoint.

Earlier, Japan's Nikkei 225 stock average gained 47.83 points, or 0.5 percent, at 10,219.89, while South Korea's Kospi gained 1.3 percent to 1,615.12. Markets in Taiwan and Singapore also gained.

In Australia, stocks closed up 0.3 percent after the country's central bank hiked its key interest rate to 4 percent, the fourth increase since October, as it continues to reduce stimulus to an economy that has rapidly recovered from the global recession.

But Hong Kong's Hang Seng dropped 150.82, or 0.7 percent, to 20,906.11. Heavy selling in HSBC shares, down more than 7 percent, dragged on the broader market after the British-based bank's results disappointed investors. China's Shanghai index was down 0.5 percent.

Oil drifted lower, with the benchmark contract down 9 cents to $78.61 a barrel