Euro Hurt by Greece Concerns -- 4th Update

By Tommy Stubbington 

The euro slipped and Greek markets were rattled Monday amid renewed concern over the country's future in the eurozone.

The common currency fell 0.7% against the dollar to $1.1144, its weakest level in a week, as a meeting of eurozone finance ministers in Brussels to discuss the terms of future financial aid for Athens got under way. Few analysts are expecting a breakthrough.

"Uncertainty over Greece is back to the forefront," said currency strategists at Citigroup.

Greece's Athex Composite index fell 3.8%. Bank stocks led the decline, with Alpha Bank AE down 9.7%, and National Bank of Greece SA down 7.1%.

Adding to the nerves, a senior IMF official said Sunday the fund is working with authorities in some of Greece's neighbors on contingency plans for a Greek default, a rare public admission that talks could fail. Another Greek payment to the International Monetary Fund is due Tuesday.

Germany's finance minister said a referendum in Greece on the country's bailout program may be a good idea as he arrived at the meeting Monday. Such a strategy could add a further layer of unpredictability to already tense negotiations.

"The talks between the Greek government and its international partners are entering a crucial phase, overshadowed by a precarious fiscal situation, heavy debt redemptions, and concerns about the stability of the banking system," analysts at UBS said.

The bank expects a deal between Athens and its creditors to be reached but added that failure to hammer out an agreement in the coming weeks could put Greece on a "slippery slope" toward exit from the euro area.

In equity markets, the Stoxx Europe 600 was less than 0.2% higher, as investors weighed Greek concerns against a Chinese interest rate cut that boosted stocks in Asia. The European index had risen sharply on Friday, helped by an unexpectedly clear outcome to last week's U.K. general election and a recovery in U.S. job growth.

Germany's DAX index was 0.4% lower. France's CAC 40 fell 1.3%, weighed down by a sharp decline in Airbus shares after a military transport plane built by the firm crashed in Spain on Saturday.

Mining shares, which are highly sensitive to Chinese demand, were the best-performing sector on the Stoxx 600, rising 1.4% after the easing from the People's Bank of China.

That helped the U.K.'s resource-heavy FTSE 100 rise marginally.

In bond markets, short-term Greek debt weakened, pushing two-year yields 0.5 percentage point higher to 20.4%.

German 10-year yields climbed 0.03 percentage point to 0.57% as markets remained jumpy following last week's selloff in eurozone bond markets.

U.K. government bond yields were also a touch higher after the Bank of England kept interest rates on hold, as widely expected.

In commodities markets, Brent crude oil was down 0.1% at $66.04 a barrel, while gold was steady at $1,188.50 an ounce.

Write to Tommy Stubbington at [e-mail]

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