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Greece returns to jolt markets

Pan Pylas, Associated Press

A couple looks at the electronic stock boards at the Tokyo Stock Exchange in Tokyo, Friday, June 21, 2013.Asian stock markets took a beating Friday, as investors remained edgy about whether the U.S. Federal Reserve might start to reduce its monetary stimulus program this year and signs of economic stress in China. Asia's biggest benchmark, Japan's Nikkei stock average, lost 0.6 percent to 12,935.77. (AP Photo/Itsuo Inouye)

LONDON (AP) -- Greece returned to stalk the financial markets Friday at the end of a turbulent week that's been dominated by a signal from the U.S. Federal Reserve that it may be done with its monetary stimulus.

Though trading had shown signs of settling down, developments in Athens provided investors with a clear reminder that the country's problems are a long way from being fixed.

"The euro area's problems are back in the spotlight with an all-familiar cast," said Neil Mellor, an analyst at Bank of New York Mellon.

The catalyst behind this time was one of the country's governing parties pulling its two cabinet ministers from the cabinet following a dispute over state broadcaster ERT.

Even without the support of the Democratic Left, the government led by conservative Prime Minister Antonis Samaras can survive as the other coalition partner, socialist Pasok, remains. However, the majority in Parliament will be paltry and raises questions over the government's ability to survive for long and pursue the package of austerity measures and reforms demanded by the country's bailout creditors.

As a result, the yield, or interest rate, on Greece's 10-year bonds was up 0.57 percentage point at 11.12 percent, slightly down on its earlier 2013 high of 11.45 percent. The main stock market in Athens was down 6 percent.

The return of Greece to the forefront of investor attentions fed through into markets in Europe and stock indexes, which had been trading higher earlier in the day. The euro was a notable casualty too, trading 0.97 percent lower at $1.3104.

In Europe, Germany's DAX was down 1.76 percent at 7,789, while the CAC-40 in France fell 1.11 percent at 3,658. The FTSE 100 index of leading British shares was 0.7 percent lower at 6,116.

In the U.S., the Dow Jones industrial average was down 0.38 percent at 14,703 while the S&P 500 index was down 0.46 percent to 1,580.

Despite the worries over Greece, trading was not as frantic as in the aftermath of Wednesday's comments from U.S. Federal Reserve Chairman Ben Bernanke that the central bank's bond purchases would likely slow down this year and end in 2014.

Bernanke's admission had prompted widespread concerns among investors, who have grown used to the central bank's money-creation policies over the past few years. Stocks have taken a particular pounding, with the Dow Jones index suffering a 560 point slide on Thursday alone. Other assets, such as commodities, including gold, and U.S. Treasuries, have also suffered drastic drops.

The main point of interest for markets is the uncertainty over the Fed's exit strategy. The new money the Fed has created through its bond-buying program over nearly five years has been designed to shore up the U.S. economy. However, it has also been a major factor behind market developments.

The prospect that the policy will be unwound sooner than many investors thought prompted the big moves over the past couple of days despite U.S. economic data pointing to a solid recovery that may be able to sustain itself without outside support from the Fed. Stocks, government bonds, in particular U.S. Treasuries, got hammered, while the dollar surged.

Elsewhere, markets were echoing developments in stocks — for example, early oil price gains evaporated, and the benchmark New York price was down $1.87 cents at $93.27 a barrel.

Earlier in Asia, Japan's Nikkei 225, the region's biggest benchmark, bucked the losing trend in Asia, as the yen weakened against the dollar. That helps the country's exporters by making their products more competitive abroad. The Nikkei rose 1.7 percent to close at 13,230.13.