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Financial Focus

STANDARD & Poor’s dealt a blow to Europe’s efforts to get banks involved in a second bailout for Greece, claiming that the proposal to participate in a “Greek Brady plan”, in which they would roll over most of their Greek debt in return for high interest rates and high-quality collateral, would be an “effective default” by the country. EU officials have been working to strike a “burden-sharing” deal to share the cost of a new bailout with European banks, but have been constrained by the need for any deal to avoid a “credit event” – thought to involve a ratings agency downgrade to “default”.

CHINESE banks’ loans to local governments may be 3.5 trillion yuan (£337.4bn) more than estimated and the outlook for the industry is potentially turning negative, the credit-rating agency Moody’s said in a report yesterday. An assessment of new data from agencies including China’s national audit office indicates that the banks’ exposure to local government borrowers is greater than anticipated. The report concluded that the credit outlook for lenders is souring in the “apparent absence of a clear master plan to deal with this issue”.

MARKETS:

THE FTSE pushed on from last week’s bullish trading yesterday, edging past the morale-boosting 6,000 mark to its highest level since May. The upturn in equities was seen elsewhere in Europe, with the FTSEurofirst 300 index of top European shares rising by 0.2%, the highest close in a month.

ASIAN stocks steadied near one-month highs on Tuesday as investors took breath after five consecutive days of gains. Stock markets in Australia and Japan were largely flat with investors awaiting an Australian central bank rate decision where it is almost certain to hold rates at 4.75%. China shares, which have been at the forefront of the latest rally in regional equities, dipped after rating agency Moody’s said its local government debt burden may be 3.5 trillion yuan (£337.4) larger than auditors estimated, putting banks in line for deeper losses.

EUROPEAN shares are expected to open flat to slightly lower on Tuesday as one-month high equity prices prompt investors to take profits ahead of the Eurozone services PMI and retail sales data, which may offer some short-term direction to the market.

CURRENCIES:

THE EURO came under some profit taking overnight, though it still held within striking distance of a one-month high against the dollar before a much expected interest rate increase Thursday where a hawkish European Central Bank might attract more buyers to the beleaguered currency.

ENERGY:

OIL traded near $95 a barrel for a second day in New York, failing to extend last week’s 4.2%, as investors bet China will step up efforts to cool its economy, tempering fuel demand.

COMMODITIES:

GOLD held steady today, after a warning by Standard & Poor’s that it would treat plans for a rollover of privately-held Greek debt as a selective default, underpinning safe haven demand for bullion.

VAST deposits of rare earth minerals, crucial in making high-tech electronics products, have been found on the floor of the Pacific Ocean and can be readily extracted, Japanese scientists said yesterday.

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