Stocks in technical bounce and euro hit amid Greek doubts

The euro hit near two-year lows yesterday as European and US data offered little light in the gloom and an EU summit failed to come up with any fresh remedy to reassure investors over Greece’s future.

Dealers said a sharp technical bounce for stocks followed heavy losses on Wednesday, but the gains were vulnerable in the absence of a news lead.

European surveys indicated the economy slowing sharply across the board while the latest US jobs numbers showed no marked improvement in hiring, the key development needed to increase demand and get the economy moving again.

In London, the benchmark FTSE 100 index of top companies closed up 1.59 per cent to 5,350.05 points. In Frankfurt, the DAX 30 added 0.48 per cent to 6,315.89 points and in Paris the CAC 40 rose 1.16 per cent to 3,038.25 points.

In New York, the blue-chip Dow Jones Industrial Average gave up early gains to slip 0.06 per cent while the tech-rich Nasdaq was down 0.42 per cent at around 1600 GMT.

In London, CMC Markets analyst Michael Hewson said that “nothing in the data... suggests that economic conditions in the UK and Europe are easing against a backdrop of policy paralysis across Europe. Markets are rallying today – but that surely reflects the fact that a lot of the data is pretty much priced in”.

“Whichever way you like at it, unless policymakers come up with radical new solutions with respect to the crisis they will soon be faced with the prospect of delivering closer fiscal integration or overseeing the breakup of the euro.”

EU leaders pledged support for Greece at an informal Brussels summit on Wednesday but analysts said the meeting highlighted divisions between France and Germany on dealing with the region’s ongoing sovereign debt crisis.

Fears remain that the crisis, which has already resulted in bailouts for Ireland, Greece and Portugal, could now potentially spread to Spain and Italy.

The rate of return for investors on 10-year German bonds on the secondary market fell to 1.358 per cent from 1.383 per cent at Wednesday’s close.

The data highlighted “the economic slowdown which appears to be tightening its grip across the region and increasing the force of the debt crisis,” said Rabobank analyst Jane Foley.

Business confidence in Germany dropped unexpectedly sharply in May, with the Ifo business climate index dropping to 106.9 points in May from 109.9 points in April, compared with analyst forecasts for a very modest decline.

In Britain, data showed that the recession was deeper than previously thought, with the economy shrinking 0.3 per cent between January and March, worse than the prior estimate for a 0.2-per cent contraction.

In Asia, weak manufacturing data for May in China intensified worries over a slowdown in the world’s second biggest economy, leaving markets there lower.