Asian stocks gain as Greece passes austerity Bill

Last Updated: Mon, Feb 13, 2012 19:31 hrs

Asian shares and the euro gained on Monday after Greece came a step closer to securing a much-needed bailout fund and avoiding a messy default, though most of the recent optimism appeared to have been already priced in.

European shares were seen following Asia higher, with financial spreadbetters expecting Britain's FTSE 100, Germany's DAX and France's CAC-40 to open up about 0.5-0.7 per cent.

The Greek parliament approved the deeply unpopular austerity bill, while serious violence broke out on the streets of Athens and spread across the country, highlighting the tough challenge the government faces with the reforms.

A rise over the past few weeks, partly on expectations of a Greek deal, has brought many Asian equities markets to levels that would require further positive news to break higher, analysts say.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8 per cent by early afternoon, but at one point dipped into negative territory, reflecting market worries about the many hurdles still facing Greece and other heavily indebted countries in the euro zone.

The index hit a six-month high on Thursday on optimism that Greece would clinch a deal on austerity measures, only to pull back on Friday when global lenders demanded more steps be taken to show Athens' commitment before they agreed on a crucial second bailout.

Japan's Nikkei added 0.6 per cent, shrugging off data showing Japan's economy shrank a bigger-than-expected 0.6 per cent in October-December.

"The recent risk-taking sentiment has been based on an assumption that a disorderly default will be avoided, (so) the approval confirms this assumption is still valid and will support sentiment," Junya Tanase, chief currency strategist at JPMorgan Chase in Tokyo.

“As long as other riskier assets respond positively, the euro will also keep a relatively firm tone. But this is just one of the many issues Greece still must solve, and markets will remain jittery over headline risks on Greece,” he added.

The euro climbed to a session high of $1.3262 on the Greek parliamentary approval and last stood up 0.4 per cent at $1.3254.

Markets seen capped
Along with the parliamentary approval, Greece must also find a further 325 million euros of spending cuts and political assurances must be given that the plan will be implemented, to gain approval from global lenders.

Euro zone finance ministers are scheduled to meet later this week to discuss giving a seal of approval for the new euro 130-billion bailout, a lifeline for Greece to ride out a major bond redemption on March 20.

Many Asian stock indexes and currencies have risen in recent weeks to test key resistance levels after the US Federal Reserve pledged to keep interest rates very low for longer than first indicated, on encouraging US economic data and on signs that China will likely avoid a hard landing.

Markets now need more positive economic news and concrete steps from Europe to contain its debt crisis in order to extend those gains, analysts say.

One red flag for the risk rally may have emerged on Friday as the CBOE Volatility index VIX jumped nearly 12 per cent, the biggest percentage rise in three months. The index measures expected volatility in Wall Street's S&P 500 over the next 30 days and rose to a three-week high.

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