Markets Unsettled as Greece’s Borrowing Costs Surge

Markets on Wall Street and European were lower on Thursday as investors took in several economic indicators that raised concerns about the recovery.

In the United States, the latest reports pointed to higher inflation and highlighted the continued weakness in the job market. The weekly unemployment claims rose back above the 400,000 level and the government said the core producer prices rose slightly faster than expected in March.

Indexes in Europe declined as Greece faced a new surge in its debt costs and Chinese inflation returned as an investment concern.

In early trading, the Dow Jones industrial average declined 87.34 points or 0.71 percent, while the broader Standard Poor’s 500-stock index lost 9.87 points or 0.75 percent. The technology heavy Nasdaq dropped lost 23.78 points or 0.87 percent.

The FTSE 100 in London was down 0.96 percent, while the DAX in Frankfurt declined 0.84 percent and CAC 40 in Paris lost 1.2 percent. Earlier, the Nikkei benchmark closed up 0.1 percent, held back by continued worries about the impact of its earthquake, tsunami and nuclear disasters. Shares in Hong Kong and Shanghai ended lower.

“The initial focus today will be more on earnings and the worldwide growth and inflation issues,” said Brian Lazorishak, portfolio manager at Chase Investment Counsel, but the jobless number should create additional selling pressure.

Greece’s borrowing costs, along with those of Ireland, Portugal and Spain, soared after Germany said for the first time that Athens may need to restructure its debt, a move one central banker warned would be a catastrophe.

Growing talk of restructuring by Greece, the first euro zone member to receive a bailout a year ago, points to a new stage in the debt crisis that has driven Ireland and Portugal to seek aid and forced draconian budget cuts in Spain.

Wolfgang Schäuble, the German finance minister, acknowledged on Wednesday that Greece might need to restructure.

But it is also clear that policy makers are divided on the issue, and a member of the European Central Bank’s executive board, Lorenzo Bini Smaghi, warned that such a move by Greece would cripple its banks and economy.

“Ultimately it’s up to Greece to decide the way forward, given that it will suffer the worst consequences,” Mr. Bini Smaghi told Italian business daily Il Sole 24 Ore. “But other countries must avoid pushing it towards a catastrophe.”

The growing debate about the sustainability of Greece’s debt load goes to the core of the troubles facing Europe’s most-indebted economies as they struggle with budget cuts that undermine their ability to grow and service their debt.

Greece received a bailout of 110 billion euros — about $140 billion — from the European Union and International Monetary Fund nearly a year ago, followed by Ireland in November. Portugal asked for a bailout last week, which could reach 80 billion euros.

“The severe economic recession and the lack of improvement in tax revenues suggest Greece may already be in the vicious spiral of too tight fiscal policy and too weak economic performance, where a write-off of part of the debt would be the only possible way out,” Giada Giani, an economist at Citibank, said in a report.

The return that investors demanded to hold two-year Greek bonds jumped to 18.30 percent, up 0.83 percentage point and the highest rate since after the country asked for a bailout last year.

The yields are now much higher than 10-year rates, pointing to concern among investors that it is shorter-term bonds that will lose the most value in any restructuring.

European officials are hoping that Portugal’s bailout will be the last one, and debt markets have broadly shown both that Spain and Italy appear to be succeeding in keeping investors’ faith.

European stocks were also pressured by concern that Chinese inflation after a media report suggested inflation figures there will be higher than expected in March.

Investors are particularly concerned about Chinese inflation, fearing that government attempts to restrain it could prompt a “hard landing” for the economy.

“Inflation in emerging economies has become a serious issue, as the impact from high commodity prices is stronger for those countries,” Arnaud Scarpaci, fund manager at Agilis Gestion in Paris, said.

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