France and Belgium rushed to the aid of Dexia SA on Tuesday, in what will be the first state rescue of a European bank in the Eurozone sovereign debt crisis. The lender to hundreds of French and Belgian towns, will see its French municipal finance arm broken off and put under the ownership of French state banks. The rescue plan also looks likely to involve a broader break-up, with the sale of healthier operations, such as its Belgian and Turkish banking businesses, as well as the creation of a state-guaranteed pool of toxic assets.
Moody’s reminded investors that Europe’s debt situation remains dire, as it cut its rating on Italy’s bonds by three notches to A2 from Aa2 late on Tuesday, saying it saw a “material increase” in funding risks for Eurozone countries with high levels of debt. Moody’s said that the euro-area nations “will at some point have to choose between increasing the level of mutual support, and managing further defaults,” adding that “the former option is the one that euro-area policy makers are more likely to adopt.”
Japanese stocks gave up early gains overnight and continued to fall, despite a late rally on Wall Street. “The hopes that lifted US stocks in late trading weren’t a reason for Japan to rise, as foreigners continue to sell Japanese shares and the tough situation here is continuing,” said a leading Japanese fund manager.
THE S&P 500 briefly entered bear market territory early in yesterday’s session when it fell to a level 20% from its 2011 high. The steep losses attracted bargain hunters, who massively stepped into the market in the final hour of trading. The rally was also prompted by Fed Chairman Ben Bernanke, who said the Fed is prepared to take further steps to help an economic recovery that is “close to faltering”.
THE FTSE 100 hit a 15-month closing low yesterday, with banks and commodity stocks leading a broad-based sell-off, as growing doubts over Greece’s ability to stave off a debt default triggered fears of financial turmoil. The FTSE recovered some of its losses when the US Fed said it was prepared to help the ailing economic recovery.
European shares are set to rebound on Wednesday after falling about 5% in the past three sessions, with investors expected to buy beaten-down stocks and take some comfort from an agreement by the region’s governments to safeguard their banks.
THE EURO fell against the dollar on speculation mounting debt concerns and signs of economic slowdown will compel the European Central Bank to increase monetary stimulus at its meeting tomorrow.
Oil gained for the first day in four in New York after a surprise drop in US crude stockpiles led investors to reduce bets that prices will decline. Futures rose as much as 3.7% after sliding 8% in the past three days.
Chile, the world’s biggest copper-producing nation, expects mining companies to maintain their investment plans even after prices slumped by the most in three years and is seeing few signs of weaker Chinese demand. Spending on new or existing mines will reach $67 billion over the next eight years, Mining Minister Hernan de Solminihac said in an interview in London yesterday.