Financial markets have been unsettled amid concerns about political stability in Greece and the fate of a second bailout for the country, sending investors into less risky assets. On Friday, Germany agreed under pressure from France not to force private investors to take on some of the burden of a new bailout package for Greece. The announcement in Berlin meant Germany was backing away from a sticking point with the European Central Bank on the issue.
While the stock market was higher for most of the day after the announcement, the market pared gains less than an hour from the close after Moody’s Investors Service said it put Italy’s government bond ratings on review for possible downgrade. It cited growth challenges, a likely rise in interest rates and risks posed by changing funding conditions in Europe as among the reasons for the review.
The Dow Jones industrial average was up 42.84 points, or 0.36 percent, to 12,004.36. The Standard Poor’s 500-stock index was up 3.86 points, or 0.30 percent, to 1,271.50. After early gains, the Nasdaq composite index fell 7.22 points, or 0.28 percent, to 2,616.48, recording its fifth consecutive weekly loss.
The euro was buffeted by developments, starting with the announcement by Chancellor Angela Merkel about Greece on Friday.
“That is when the euro popped” to $1.4240 within about 15 minutes, said Brian Dolan, the chief currency strategist for Forex.com. By the time of the Moody’s announcement about Italy, the euro was at $1.4310, and it then dipped to $1.4280.
“It highlights the sovereign debt overhang that continues to plague the euro zone,” Mr. Dolan said. “You get a short-term rebound in the euro but the long-term issues are still there, and that is going to prevent the euro from a sustained recovery.”
In European stocks, the CAC-40 was up 31.43 points, or 0.83 percent, at 3,823.74. The DAX in Germany was up 53.85 points, or 0.76 percent, at 7,164.05 and the FTSE in Britain rose 16.13 points or 0.28 percent, to 5,714.94.
Bruce McCain, chief investment strategist of Key Private Bank, said the market had become oversold because of concerns related to the euro zone debt problems. As a result, investors have taken down some of their exposure to equities.
Now, Mr. McCain said, “it has the opportunity to rally a bit.”
“We priced in a lot of negatives over a short time period,” he said. “We have moderated the risk. We may well moderate more risk.”
United States government bonds, which traded higher in price on Thursday as European debt concerns engulfed the markets, were trading only slightly lower on Friday on the hopes of another bailout. The Treasury’s 10-year note yield was up 3 basis points to 2.96 in early trading on Friday.
But analysts said there were still unresolved variables that kept risk lingering on the margins, including how the Greek people will accept any new austerity demands and whether there will be contagion to Ireland, Italy, Spain and Portugal.
“The problems in the euro zone don’t begin and end with Greece,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, in an early analysis of the bond trade. “Back in the U.S., things of an economic nature are still ‘spotty’ at best.”
Mr. McCain noted that recent economic reports in the United States have been mixed, although on Thursday the latest statistics on housing starts and permits and weekly jobless claims suggested a bit of improvement. In addition, companies are still sorting out the impact of the supply chain disruptions from the disasters in Japan and oil has declined.
In the broader market, financials, consumer staples, utilities and telecommunications shares rose by more than 1 percent.
Article source: http://feeds.nytimes.com/click.phdo?i=c4ce421d0c9acca5445e980ac956b80e
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