Greek debt woes weigh on European stocks

LONDON: European stock markets fell Wednesday amid mounting concerns about Greece's debt crisis and a surprise downward revision to growth in the 16 countries that use the euro. Wall Street got off to a subdued start as the Dow Jones industrial average struggled to break above 11,000 for the first time in a year and a half.

In Europe, the FTSE 100 index of leading British shares was down 10.70 points, or 0.2 percent, at 5,769.65 while Germany's DAX fell 19.25 points, or 0.3 percent, at 6,232.96. The CAC-40 in France was 20.56 points, or 0.5 percent, lower at 4,033.38.

And on Wall Street, the Dow stock average faced resistance trying to break above 11,000, trading 21.38 points, or 0.2 percent, lower at 10,948.61 soon after the open. The broader Standard & Poor's 500 index fell 1.43 point, or 0.1 percent, to 1,188.01.

Once again, Greece took center stage as investors continued to fret about the country's ability to pay off its debts — the ten-year spread between Greek and Germany bond yields stood at 3.99 percentage points, just below Tuesday's all-time high but way up on the 3 percent level when the EU agreed on an aid program that would involve the International Monetary Fund.

Talk that Greece was looking to renegotiate the terms of the backstop agreement — denied by the finance ministry — as a technical team from the IMF arrived in Athens has fueled the spike in Greek borrowing costs.

"All of this puts a question mark over longer term debt sustainability as well as the threat of contagion elsewhere in the eurozone," said Neil Mackinnon, global macro strategist at VTB Capital.

With fiscal retrenchment due in Greece, as well as Portugal and Spain, there are also mounting concerns that the debt crisis will weigh on eurozone economic growth for a long time yet, particularly as lower demand for German goods could squeeze the eurozone's biggest economy.

"This does not look like a sensible strategy and will likely end up in economic slump for the eurozone generally alongside the risk of deflation," said Mackinnon.

Worries about the strength of the eurozone economy were stoked further on Wednesday with the news that economic growth ground to a halt in the last three months of 2009 as output stagnated in Germany and contracted once again in Italy.

In its latest estimate for the quarter, Eurostat, the EU's statistics office, said eurozone economic activity was flat, in contrast to its previous prediction of 0.1 percent quarterly growth.

The downward revision was unexpected and provides further evidence of how weak the recovery in the eurozone is — it was only in the third quarter of 2009 that the bloc emerged from recession with 0.4 percent growth.

"Today's data clearly highlight the fragile and unsustainable nature of the eurozone recovery," said Owen James, an economist at the Centre for Economic and Business Research.

The figures did little to entice any optimism regarding the euro. By mid afternoon London time the euro was trading 0.4 percent lower at $1.3342.

In contrast, data shows the U.S. economy is emerging more strongly from its recession. Figures last week showed that the U.S. created more jobs in March than at any time for over two years.

On Tuesday, stocks in the U.S. ended flat even though the U.S. Federal Reserve provided yet another indication that borrowing costs will not be rising any time soon — the benchmark Fed funds rate stands at a record low in a range between 0-0.25 percent.

The minutes to the last rate-setting meeting retained the phrase that interest rates should remain low "for an extended period," despite protestations from Thomas Hoenig that super-low borrowing costs would stoke trouble ahead.

"The one-line summary is that the Federal Reserve is not anywhere near raising rates," said Kit Juckes, chief economist at ECU Group.

Earlier in Asia, Hong Kong's Hang Seng stock index jumped 1.8 percent while Thailand rose 1.3 percent and Singapore gained 0.7 percent. China's Shanghai index fell 0.3 percent and Malaysia, Australia, India and South Korea were little changed.

Japan's Nikkei 225 stock average rose 0.1 percent to 11,292.83, as the country's central bank decided Wednesday to keep its key interest rate at 0.1 percent. The bank has not tweaked the overnight call rate target since December 2008.

Benchmark crude for May delivery fell 45 cents to $86.39 a barrel Wednesday.