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World stocks respond to signs of Greece's progress

Mon, 11/07/2011 - 11:45pm
PAMELA SAMPSON - AP Business Writer - Associated Press

Asian stock markets struggled but European shares advanced Tuesday as fears that Italy could become the next domino to fall in Europe's debt crisis were muted by Greece edging back from the brink.

Benchmark oil hovered near $96 per barrel, while the dollar fell against the euro and the yen.

Stocks in Europe gained in early trading. Britain's FTSE 100 rose 0.8 percent to 5,552.21 while Germany's DAX was 1 percent higher at 5,986.18. France's CAC-40 added 0.9 percent to 3,129.43. Wall Street was headed for a lower opening, with Dow Jones industrial futures down 0.1 percent to 1,256.50 and S&P 500 futures losing 0.1 percent to 1,256.50.

In Asia earlier in the day, stocks struggled to make headway. Japan's Nikkei 225 index fell 1.3 percent to close at 8,655.51. South Korea's Kospi swung into negative territory midday, to close 0.8 percent down at 1,903.14.

Hong Kong's Hang Seng was nearly unchanged, closing less than 1 point higher at 19,678.47. Australia S&P/ASX 200 rose 0.5 percent to settle at 4,293.80.

Mainland Chinese shares slipped, with the benchmark Shanghai Composite Index edging down 0.2 percent to 2,503.84 while the smaller Shenzhen Composite Index dropped 1 percent to 1,054.73.

Wall Street finished higher Monday on news that Greece would receive the latest installment of emergency aid as long as the country's two main parties commit to implementing economic reforms agreed to by the country's previous government.

The Dow rose 0.7 percent to close at 12,068.39. The Standard & Poor's 500 index rose 0.6 percent to 1,261.12. The Nasdaq rose 0.3 percent to 2,695.25.

Francis Lun, a Hong Kong-based analyst, said Greece's willingness to implement changes demanded by the European Union — and hopefully prevent the country from descending into insolvency — helped some markets eke out slight gains.

"Markets rose slightly today mainly because I think Europe managed to temporarily solve the problem," Lun said. "Investor confidence has been restored. They went bargain-hunting."

Further gains could come Wednesday with the release of monthly inflation data from China. Price increases are expected to moderate, reinforcing expectations that the government will refrain in the near-term from monetary tightening.

"China's number should fall below 6 percent because the price of pork has been falling sharply this month," Lun said. "That one item alone will bring the CPI figure below 6 percent. That means policymakers can breathe a sigh of relief that high inflation has peaked."

Meanwhile, as Greece's economy hobbled along on life support, worries began to surface about Italy, where the prospect of financial disaster was real because of Rome's huge debts and slow growth.

Unlike Greece, Ireland and Portugal — the three countries that Europe has already bailed out — Italy's economy could be too large to rescue.

Soaring borrowing rates in the past week have intensified pressure on Premier Silvio Berlusconi to resign.

The yield on Italy's 10-year bonds jumped Monday to 6.67 percent, drawing uncomfortably near the 7 percent threshold that forced both Ireland and Portugal to accept bailouts.

"Traders do not want to see yields advance to 7 percent and above, after the fate suffered by the likes of Greece, Ireland and Portugal when their yields rose to those levels," Stan Shamu of IG Markets in Melbourne wrote in a report.

Investors want the Italian government to quickly pass measures to boost growth and cut debt. But defections from Berlusconi's coalition government mean he no longer commands enough loyalty to pass the reforms.

In Tokyo, embattled Olympus Corp. plummeted 29 percent after admitting it had used a series of acquisitions to cover up losses dating back to the 1990s.

Japan's exporters continued to be battered by sustained strength in the yen, which reduces overseas profits. Copier maker Ricoh Co. fell 3.3 percent. Technology company Fujitsu dropped 3.8 percent and Hitachi Ltd. lost 2.3 percent.

In mainland China, power utilities and coal companies led the gains while shares in real estate, cement and media companies weakened.

"Premier Wen Jiabao comments on keeping property-tightening in place was overshadowing the market, along with profit-taking," said Cai Dagui, an analyst at Ping'an Securities, based in Shenzhen.

Shanxi Coking Co. hit the daily limit of 10 percent while Shanghai Electric Power Co Ltd. gained 4.4 percent.

Hong Kong-listed property shares also slumped. China Overseas Land & Investment fell 5 percent while China Resources Land lost 3.6 percent.

In energy trading, benchmark crude for December delivery was up 40 cents at $95.91 in electronic trading on the New York Mercantile Exchange. The contract rose $1.26 to settle at $95.52 in New York on Monday.

The euro was higher at $1.3776 from $1.3761 on Monday in New York. The dollar was slightly lower at 77.97 yen from 78.02 yen.

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AP researcher Fu Ting contributed from Shanghai.

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