DARK DAYS UNCERTAIN TIMES

It's all Greek to markets

Sensex Closes Below 17,000-Mark After Two Months, Re Slips To Six-Week Low

Our Bureau & Agencies MUMBAI 

GROWING fears the fragile global recovery is threatened by the contagion effect from the Greek debt crisis spooked world markets again, knocking asset classes from shares to oil to other commodities, and tipped the benchmark Sensex to its lowest close in two months. 
    The fate of countries such as Portugal, Spain, Italy, Ireland and possibly even the UK hangs in the balance as the unfolding Greek tragedy raises the risk of fresh uncertainty to a world economy that only just seemed to be recovering from the global economic crisis. 
    In India, shares fell for the fourth straight day, with the benchmark BSE Sensex closing below the 17,000-mark for the first time in two months. It closed 0.6% lower at 16,987.53 points. The rupee fell to a six-week low against the dollar during the day, a casualty to the worsening investor sentiment, before being pulled back by suspected central bank intervention. 
    The euro predictably fell to a 14-month low, crude oil for June fell 2% to $78.40 a barrel, copper lost 0.8% to $3.125 a pound while Japan's Nikkei, London's FTSE 100 index and Wall Street too fell amid concerns that the euro zone debt crisis could continue to worsen. The MSCI Asia Pacific Index tumbled 2.4% to erase all its 2010 gains. 
    While a mood of pessimism prevailed across most markets, in India, it is one of caution. 
    "The market will continue to be rangebound for a while as adverse news flow from global markets will cap the upside," said Navneet Munot, chief investment officer at SBI Mutual Fund. "At the same time, we may not see a sharp fall because domestic conditions—interest rates, liquidity and earnings—are quite supportive.'' Losing hopes of fast recovery 
BUT globally traders were losing hopes of an immediate recovery from the sovereign credit crisis after the European Central Bank kept policy rates at 1% and said it did not discuss government bond purchases that would have eased the pressure. 
    "We see no sign that this crisis is going to end," Steven Barrow, head of Group of 10 currency research at the Standard Bank in London, was quoted by Bloomberg News. 
    Greece was staring at the possibility of a default despite all the bailout efforts. 
    The country does not have the money to pay bond redemptions of e8.5 billion this month, said Greece's finance minister, George Papaconstantinou. It is waiting to receive e110 billion from the European Union and the International Monetary Fund in return for cost-cutting measures that the union groups have called "savage." Falling asset prices and the possibility of some banks in Germany and France incurring losses if Greece defaulted, have aggravated investors' fears. 
    Ratings firm Moody's said Europe's fiscal crisis could threaten banks in Portugal, Spain, Italy, Ireland and the UK. 
    "Each of these countries' banking systems faces different challenges of different magnitudes,'' says Moody's, warning that ``contagion risk could dilute these differences and impose very real, common threats on all of them". 
    The fallen values of securities are still not attractive for investors to buy given the continuation of the sovereign crisis and the potential slowdown induced by China on the global economy. China's efforts to deflate an asset price bubble may slow down global economic growth. 
    "It's probably too early," said Florian Esterer, a senior money manager at Zurich-based Swisscanto. "The question is contagion. The risk is still there and is keeping us on the sidelines. We really need to see Portuguese and Spanish bonds stabilising. If Portugal and Spanish yields keep rising, how do you keep them from falling apart?" 
    Emerging markets, which were seen as a strong growth spot in the world, were also hit because of the rising risk aversion. Bond sales were deferred, including India's Essar Steel Holdings. 
    "It's not the best time for emerging-market countries to sell bonds," said Regis Chatellier, a strategist for developing-nation debt at Morgan Stanley in London. "The Greek crisis is a big factor, and it's going to be much more volatile in emerging markets than it was over the past few months." 
    If at all there was an oasis in the global markets on Thursday, it was gold. The gold futures contract for June rose 0.9% to $1,185.70 an ounce. 
    "Gold will become more and more of a safe haven, as people just want safety," said David Thurtell, analyst with Citigroup.