Investors took back yesterday's gains, selling stocks and the euro, vacillating on bonds and pushing gold to a five-month high today unwilling to fully commit to markets because of concerns the €750 billion plan to contain Greece's debt crisis is only a short-term fix, not a long-term solution.
German Chancellor Angela Merkel's cabinet backed plans to contribute €123 billion in loan guarantees to support the euro currency which after initial euphoria on Monday brought it to $1.31, is now down 0.46 per cent on the day to $1.2725.
"We realize now that this is just another way of delaying perhaps the inevitable," said Shaun Osborne, chief FX strategist at TD Securities in Toronto. "It pushes the debt problems further down the road."
US shares opened weaker in New York trade while European markets floundered. Chinese inflation, rising to an 18-month high in April, increased concerns the government still has its work cut out to keep the world's third-largest economy from boiling over.
In mid-morning New York trade, the Dow Jones industrial average fell 35.67 points, or 0.33 per cent, at 10,749.47. The Standard & Poor's 500 Index lost 4.27 points, or 0.37 per cent, at 1,155.46.
In Dublin the Iseq index closed down over 1 per cent at 3,127.
The Nasdaq Composite Index lost 7.93 points, or 0.33 per cent, at 2,366.74. The FTSEurofirst 300 index of top European shares dropped 1.53 per cent, giving up some of yesterday's 7.39 per cent advance.
Chinese stocks fell 1.9 per cent to their lowest level in a year on the worsening inflation outlook. MSCI's all-country world index fell 0.9 per cent. Emerging stocks dipped 0.7 per cent while emerging currencies also pulled back.
In a sobering note, the International Monetary Fund said that even though Greece's public debt was sustainable over the medium term, the nation faced plenty of risks.
Moody's credit ratings agency also warned yesterday it might downgrade Portugal's debt rating and further cut Greece's to junk status, noting the contagion effect of Greece's crisis on other euro zone members.
But even with the US dollar's strength making the precious metals more expensive, investors pumped money into gold, lifting the spot price to $1,223.90 an ounce, its best level since early December.
Reuters