Greek debt hopes shore up markets despite delay

By Pan Pylas

Associated Press

Published: Monday, Jan. 23 2012 5:44 a.m. MST

LONDON — Hopes that Greece will eventually reach a deal with private creditors on lowering its debt supported markets on Monday, as investors looked past delays in reaching an agreement that would further ease Europe's debt crisis.

The country's private creditors are being asked to accept longer maturities and lower interest rates on new bonds swapped for their existing ones.

Greece, which is negotiating alongside fellow eurozone nations and the International Monetary Fund — its bailout rescuers — wants interest rates as low as 3 percent on the new bonds. But the private creditors believe that is too low and are aiming for about 4.5 percent.

Both sides say a deal is nevertheless very close, heartening investors. The euro was the main beneficiary, climbing a further 0.9 percent to $1.2995.

Greek officials say negotiations on the private debt writedown are continuing over the phone, while no appointment has been set yet for new face-to-face talks this week.

An agreement is necessary if Greece is to get the next batch of bailout cash that would prevent a devastating debt default — Greece does not have enough money to cover a €14.5 billion ($18.7 billion) bond repayment in March. A deal would allow the country to receive a second bailout package from other European governments and the IMF, and cut Greece's debt from an estimated 160 percent of its annual economic output to 120 percent by 2020.

Greece will likely be the main topic of discussion at a meeting later of the 17 eurozone finance ministers in Brussels.

"Hopes are high that today's meeting in Brussels will produce some positive plans to tackle the ongoing debt issues and balance out some of the frustration felt by the inability of Greece to come to an agreement with its lenders," said David Jones, chief market strategist at IG Index.

Those hopes have helped shore up markets at the start of a week, which will also feature the annual meetings in Davos, Switzerland and the U.S. Federal Reserve's first rate-setting meeting of the year.

In Europe, the FTSE 100 index of leading British shares was up 0.5 percent at 5,759 while Germany's DAX rose 0.2 percent to 6.414. The CAC-40 in France was 0.3 percent higher at 3,332.

Wall Street was poised for a steady, if unspectacular, opening with little economic news on the calendar — Dow futures were unchanged at 12,658 while the broader Standard & Poor's 500 futures rose 0.1 percent at 1,310.

Optimism that Greece will clinch a deal as well as a run of successful European bond auctions and solid economic and corporate news, not least from the U.S. and China, have brightened market sentiment this year. Many stock indexes have risen to five-month highs, while the euro has clambered off 17-month dollar lows to head back towards the $1.30 mark.

Later in the week, investors will be monitoring the meeting at the Fed.

Though the Fed is expected to keep its super-loose monetary policy unchanged, there will be great interest in the outcome of the meeting. It will be the first time the Fed will be publishing its interest rate forecasts out to 2016, part of a strategy to enchance communication with financial markets.

Investors will be particularly interested to see how long it expects interest rates to remain low — previously the Fed said it expected to keep them low until the middle of 2013.

"Most, ourselves included, expect the projections to suggest the Fed sees rates on hold well into 2014," said Adam Cole, an analyst at RBC Capital Markets.

In the oil markets, traders are watching developments in the Persian Gulf, too. Iran has threatened to close the Strait of Hormuz if the U.S. and other countries impose more sanctions on it because of its nuclear program. Many analysts doubt that Iran could set up a blockade for long, but any supply shortages would cause supplies to tighten.

As a result, prices have remained well-supported — benchmark crude was up 30 cents at $98.63 a barrel in electronic trading on the New York Mercantile Exchange.

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