Europe Stocks, Euro Hit as Greek Talks Stumble -- Update

By Josie Cox 

European stocks and the euro fell Monday after talks between Greece and its European creditors collapsed over the weekend.

In early trade, the Stoxx Europe 600 index dropped 0.9%, weighed down by a 1.3% slide on Germany's DAX-30 and a 1.2% decline on France's CAC-40.

Athens's main stock exchange fell 6.4%, led by a particularly steep decline in banking stocks. Shares in Alpha Bank AE, Eurobank Ergasias SA, National Bank of Greece SA and Piraeus Bank SA all slid by between 11% and 16%, meaning that shares in all of those banks have now declined more than 20% since the start of June. Since the start of the year, they are all nursing losses of between 35% and 65%.

Greek bonds tumbled too, sending the yield on the country's 2-year debt to 27.4%, more than 2.5 percentage points higher on the day and a level last seen in late April. Yields rise as bond prices fall.

Over the weekend, European officials dismissed the Greek government's latest proposals, describing them as "vague and repetitive." Last week the International Monetary Fund pulled out of the Greek bailout talks, citing lack of progress.

That also weighed on the euro Monday, sending the bloc's single currency 0.2% lower to around $1.123.

"Creditors are getting tired with the negotiations," said Eirini Tsekeridou, an analyst at Swiss private bank Julius Baer.

Ian Williams, economist and strategist at brokerage Peel Hunt said that hopes for a compromise are diminishing, while strategists at BNP Paribas wrote in a note that "the risk of unfavorable scenarios, such as a default, has undoubtedly risen."

Attention this week will be on Thursday's Eurogroup meeting ahead of a Brussels summit on June 25, and a hefty Greek debt repayment deadline on June 30.

Elsewhere in debt markets, the yield on the 10-year German government bond was 0.02 percentage point lower at around 0.81% in early trading, but yields on Spanish and Italian 10-year debt, which some strategists say could be most affected by a Greek default, were higher at around 2.30% and 2.28% respectively.

"From a market perspective the concern is that if Greece was to default and/ or exit, then it might encourage others to do the same," said Gary Jenkins, a credit strategist at London-based asset manager LNG Capital. That, he said, "puts the entire eurozone project at risk of collapse."

In the U.S., the S&P 500 was indicated opening 0.3% lower Monday. Future contracts don't always accurately predict moves after the opening bell though.

Brent crude edged 0.1% lower to around $64.60 a barrel, while gold added 0.3% to $1,182.20 a troy ounce.

In Asia, the Nikkei ended Monday marginally lower, marking its fifth loss in the past seven sessions, with strategists also citing tension over unfruitful Greek debt talks as well as the U.S. central bank's looming decision on monetary policy.

Write to Josie Cox at [e-mail]

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