European Stocks Shrug Off Greek Uncertainty -- 2nd Update

By Josie Cox 

European stocks shrugged off uncertainty over Greece's financial future on Monday, still spurred by accommodative monetary policy from central banks around the world, as well as a revival in corporate appetite for mergers and acquisitions.

The Stoxx Europe 600, having ended Friday's session 0.3% higher, was up 0.8% by early afternoon, while Germany's DAX rose 1.3%, France's CAC 0.9% and London's FTSE 0.3%.

Strategists said that the persistent appetite for equities was supported by a reiteration of the accommodative stance from central banks in both Europe and China.

Last week, European Central Bank President Mario Draghi underscored the central bank's commitment to purchase large amounts of public and private debt for at least 18 months and until it is convinced that inflation will stabilize near annual rates of 2%.

In China, meanwhile, policy makers signaled on Monday that the country has room to ease monetary policy further, in a bid to boost sluggish growth spurring stocks across the region. "We can clearly expect more stimulus there," Rabobank rates strategists wrote in a note.

Later in the day, the People's Bank of China announced that it had lowered down payments for buyers of second homes, a further drive to support the flagging housing market.

Technology stocks were particularly in focus on news late on Friday that Intel Corp. is in advanced talks to buy chip partner Altera Corp. Shares in Intel surged more than 6% on the news on Friday also helping the European subindex of technology stocks up 1.6% Monday.

Swiss airport retailer Dufry AG, however, was one of the biggest risers on the pan-European index, on confirmation that it will pay EUR1.3 billion ($1.4 billion) to acquire more than half of Italy's World Duty Free Group, a deal that will boost its position in the global travel industry.

That helped to offset any risk aversion that may have resulted from jitters surrounding the financial future of Greece.

Ahead of a Monday deadline, officials from Athens were in Brussels over the weekend to present proposals to the European Commission, the European Central Bank and the International Monetary Fund. Approval is crucial for Greece to regain access to bailout funds and restore normal lending from the ECB, but eurozone officials said that up until now, plans had lacked the necessary detail.

Greek government bonds weakened somewhat on Monday, though trading volume was thin. The yield on the country's two-year bonds was around 0.29 percentage point higher by early afternoon at around 20.1% while the yield on 10-year bonds inched up to around 10.87%.

A so-called inverted curve, where longer-dated bonds have a lower yield than shorter dated, generally signals that investors see a heightened risk of the country defaulting.

Many market participants said that they expect Greece to strike a last-minute deal. Still, Peter Chatwell, a senior rates strategist at Mizuho International said that "Greece remains at risk of insolvency."

"Amidst the whirlwind of letters, high-profile political meetings and a daily batch of fresh comments from various policy makers, it can be hard to gauge precisely where the disagreements between Greece and its creditors reside," said Michala Marcussen, global head of economics at Société Générale. "We nonetheless maintain the view that a worst case outcome would have significant market implications," she added.

Compounding jitters, Fitch Ratings slashed its credit ratings on Greece deeper into junk territory on Friday , citing the country's precarious finances as it negotiates a bailout extension.

The rating firm said that it expects the government to survive the latest "liquidity squeeze" without defaulting on its debt but pointed to damage to investor, consumer, and depositor confidence that "has almost certainly derailed Greece's incipient economic recovery."

Athens main stock index was a little over 0.5% lower by early afternoon with banks under particular pressure.

In currency markets, the U.S. dollar started the week on a firmer footing, rising around 0.5% and 0.4% against the euro and the British pound respectively. The euro is now 10% lower against the buck so far this year as a result of the very different paths of monetary policy in the U.S. and the euro area. It traded at around $1.0840.

Write to Josie Cox at [e-mail]

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