Euro Hurt by Worries Over Greece -- 6th Update

By Tommy Stubbington 

The euro slipped and Greek markets were rattled Monday as fresh tensions emerged in negotiations between Athens and its creditors, renewing concerns about Greece's future in the eurozone.

The common currency fell 0.6% against the dollar to $1.1154 as eurozone finance ministers met in Brussels to discuss the terms of future financial aid for Athens. Few analysts were expecting a breakthrough.

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

Greece's Athex Composite index fell 2.5%. Bank stocks led the decline, with Alpha Bank AE down 5.5%, and National Bank of Greece SA losing 3.3%.

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. The comments underline doubts among Greece's creditors about the government's ability to agree on divisive overhauls without endorsement by voters.

Adding to the nerves, a senior IMF official said on 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.

"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 an exit from the euro area.

In equity markets, the Stoxx Europe 600 closed 0.3% 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 lost 0.3% and the U.K.'s FTSE 100 closed 0.2% lower. France's CAC 40 fell 1.2%, 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 1.6% after the policy easing from the People's Bank of China.

In bond markets, short-term Greek debt weakened, pushing two-year yields 0.9 percentage point higher to 20.8%.

German 10-year yields climbed 0.05 percentage point to 0.59% as markets remained jumpy after last week's selloff in eurozone bond markets.

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

In commodities markets, Brent crude oil was down 1.3% at $64.58 a barrel, while gold was down 0.8% at $1,179.10 an ounce.

Write to Tommy Stubbington at [e-mail]

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