Rebound short lived over Greece debt worries

Eurostoxx 50: 2,816.84 (+15.57) Frankfurt DAX: 7,170.94 (+20.28) Paris CAC: 3,928.99 (+12.11):EUROPEAN STOCKS rose yester- day, led by a rally in recently sold down banking stocks, although the rebound was seen short lived as simmering worries over Greece's debt kept long-term buyers at bay.

The FTSEurofirst 300 index of top European shares ended 0.7 per cent higher at 1,127.06 points, but the late rally failed to push the index back above its 50-day moving average crossed on Monday.

The euro zone’s blue-chip Euro Stoxx 50 index rose 0.6 per cent to 2,816.84 points after testing a key support level at about 2,772 points, which represents a 12-month upward trendline. The index is still down 6.5 per cent in May.

The Stoxx Europe 600 Banks index gained 2.1 per cent, with Commerzbank up 6.1 per cent and Credit Agricole up 2.3 per cent.

The rebound in banking stocks, however, was seen as technical, with its 14-day relative strength index, a momentum indicator, hitting 29 on Tuesday. Thirty or below is considered “oversold”. The index is down 16 per cent over the past three months, bruised by fears of massive writedowns for banks if debt-stricken euro zone countries such as Greece restructure their sovereign debt.

Yesterday, the Greek government scrambled to resolve a stand-off with its opposition over austerity measures, highlighting the mounting political hurdles to an orderly resolution of the euro zone debt crisis.

“Markets are willing to accept a restructuring of Greek debt . . . but the problem is not Greece, it’s the contagion risk to Spain, Italy and ultimately France,” said Xavier Lepine, chairman of French asset management firm UFG-LFP, which has 35 billion euros ($49 billion) under management.

“That’s why the ECB doesn’t want to restructure Greece’s debt. Europe will probably try to buy time, and this will create a lot of nervousness . . . and will keep the region in the doldrums for two or three years,” he said.

Despite this month’s sharp pull-back, global equities have seen continued inflows over the past four weeks while commodity-related exchange-traded products suffered huge outflows, mirroring a steep correction in commodity prices, according to data for mutual funds and exchanged-traded funds monitored by Societe Generale’s cross asset research team. – (Reuters)