Markets soft amid ongoing Cyprus uncertainty

With Cyprus facing a deadline, financial markets turn cautious over new package

Associated Press
Markets drop sharply amid Cyprus uncertainty
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Cyprus' Finance Minister Michalis Sarris, center, leaves after his meeting with Russian Finance Minister Anton Siluanov at the building of Russian Finance Ministry in Moscow, Russia, Wednesday, March 20, 2013. Cyprus' finance minister is in Russia for talks with the Kremlin over financial aid for the troubled island nation. (AP Photo/Misha Japaridze)

LONDON (AP) -- Markets were weak Thursday as investors monitored Cyprus' attempts to agree on a package of emergency measures to avoid bankruptcy.

The country's lawmakers are in a race against time to fashion a deal that will also get the blessing of potential creditors from Europe and the International Monetary Fund. The European Central Bank has warned it will end emergency support for Cyprus' banks on Monday if not bailout deal is approved by then.

Cyprus needs to come up with 5.8 billion euros ($7.5 billion) on its own in order to secure 10 billion euros in rescue loans from international creditors. Without the money, it faces bankruptcy and a possible exit from the euro — a chain of events that would hit financial markets hard.

That uncertainty has weighed on markets even though U.S. Federal Reserve Chairman Ben Bernanke reaffirmed the central bank's commitment to continue with its monetary stimulus for a while yet.

"Despite the Fed holding firm on the U.S. stimulus plan and continued optimism from the Asian markets overnight, investors still need Cyprus to deliver the goods with a credible plan B before we see another hike higher for equities," said Mike McCudden, head of derivatives at Interactive Investor.

In Europe, the FTSE 100 index of leading British shares was down 0.7 percent at 6,386 while Germany's DAX fell 0.9 percent to 7,934. The CAC-40 in France was 1.1 percent lower at 3,787.

European markets weren't help by disappointing economic figures for the 17 European Union countries that use the euro.

The purchasing managers' index — a gauge of business activity — fell to 46.5 in March from 47.9 the previous month, indicating that the eurozone economy is likely to remain in recession in the first quarter of 2013. A reading below 50 indicates contraction.

The figures failed to have much of an impact on the euro, which was trading only 0.1 percent lower at $1.2918.

Wall Street was poised for a flat opening, with both Dow futures and the broader S&P 500 futures unchanged.

Though the focus of attention in markets will likely remain on Cyprus for the rest of the day, investors will also keep an eye on existing U.S. home sales and weekly jobless claims figures. On Wednesday, U.S. markets were shored up by Bernanke's comments.

Earlier in Asia, Japan's Nikkei 225 index surged 1.3 percent to 12,635.69, its highest close since September 2008. South Korea's Kospi slipped 0.4 percent to 1,950.82 while Hong Kong's Hang Seng ended 0.1 percent down at 22,225.88.

Oil prices drifted lower too with the benchmark New York rate down 54 cents to $92.96 per barrel.

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