New York - Concern over how Greece’s debt talks
play out overshadowed the appetite for riskier assets on Wednesday, despite good
economic data from Germany and a widely held view that the US Federal Reserve
is set to signal an extended period of ultra-low rates.
The euro and European stocks fell, while a fairly lacklustre
earnings season so far kept most US stocks on Wall Street under the weather.
But Apple’s blow-out quarterly results late on Tuesday helped lift the
technology-rich Nasdaq.
Growing worries the European Central Bank (ECB) may have to write down
its holdings of Greek bonds to help restructure the country’s mountain of debt
and unlock the funds needed to avoid a messy default hurt the euro and lifted
safe haven German government bond prices, while also pushing up Italian yields.
“Uncertainty over the Greek debt talks and disappointment that
there has still been no deal is spoiling the party for the euro,” said Audrey
Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.
International Monetary Fund managing director Christine Lagarde
added to Greek debt concerns by saying public sector creditors may need to
participate in the restructuring if bond losses negotiated with the private
sector are not enough to make Athens’ debt sustainable.
Investors fear that any increase in the costs borne by the ECB to
reach a deal with Greece will cut the funds available to help other indebted
eurozone nations.
The Greek government said it hopes to complete talks on a deal with
its private creditors as early as this week, despite euro finance ministers’
rejection of an initial plan.
“We have got an awful long way to go in dealing with the debt and
budget problems (in Europe) and the structural problems... will take years to
work out,” said Jack De Gan, chief investment officer at Harbor Advisory Corp in
Portsmouth, New Hampshire.
The resurgent Greek debt concerns extinguished modest demand for
the euro after a widely watched German business sentiment index beat
expectations and rose for the third straight month in January, suggesting
Europe’s largest economy may avoid a recession.
The euro fell back under $1.30 against the U.S. dollar to be down
about 0.5% at $1.2962.
The Dow and S&P 500 fell as the unresolved Greek debt talks and
a 20% rally in US equities since October lows weighed on US investor
sentiment.
The Dow Jones industrial average was down 81.97 points, or 0.65%, at 12 593.78. The Standard & Poor’s 500 Index was down 6.04 points,
or 0.46%, at 1 308.61. The Nasdaq Composite Index was up 4.77 points, or
0.17%, at 2 791.41.
Recession fears in Europe outside of Germany gained some traction
when Britain reported its economy had contracted more than expected in the
fourth quarter as factory and utility output slumped. Four out of the UK’s top
five export markets are in the eurozone.
The pan-European FTSEurofirst 300 index fell about 1% to
1 034.96, weighed down by the technology sector despite Apple’s results.
The tech sector weakness was due to a 14% fall in the share
price of world No 1 mobile gear maker Ericsson, after it reported that profits
had halved in the fourth quarter as the global economic slowdown hit demand for
new equipment.
The STOXX Europe Technology index was down 2.5%.
German manufacturing conglomerate Siemens also saw its shares fall
for a second successive day, down 4.1%, after reporting weak results as
the eurozone crisis takes its toll on consumer demand.
Fed rate outlook awaited
The dollar index, which measures the US currency against six
other key currencies, hovered near a three-week low just below 80 ahead of a
statement expected from the Federal Reserve’s key policy making committee later
on Wednesday.
The Fed is expected to leave its key interest rates unchanged, but
is due to release a new long-term interest rate projection that could signal an
extended period of ultra-low interest rates at the end of its first meeting of
2012 later on Wednesday.
Recent gains in global stocks and the euro - despite inconclusive
talks over a bailout for Greece - combined with the outlook for a prolonged
period of low US interest rates may strengthen downward pressure on the
dollar.
“The risk is the Fed could be more dovish than what the market is
expecting, in which case you might see the dollar pull back,” said Nomura currency strategist Geoff Kendrick.
Oil prices fell. North Sea Brent was off 0.6% at $109.41,
while US crude futures dropped 0.8% to $98.15.
US Treasury debt prices were mixed.
The benchmark 10-year US Treasury note was up 2/32 in price to
yield 2.06%. The 30-year US Treasury bond was down 3/32 in price to
yield 3.15%.