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updated: 6/26/2012 6:46 AM

Markets stutter on EU summit pessimism

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  • Associated PressA businessman checks a securities firm's electronic stock board in Tokyo Monday.

    Associated PressA businessman checks a securities firm's electronic stock board in Tokyo Monday.

Associated Press

LONDON -- Concerns over the ability of Europe's leaders to agree a package of measures to deal with their debt crisis kept stock markets in check Tuesday, a day after Cyprus became the fifth euro country to ask for financial assistance from its partners in the currency zone.

On Thursday, European Union leaders meet in Brussels for another summit and expectations of a significant change in policy are low even after top European officials, including European Central Bank president Mario Draghi, touted the benefits of jointly-issued eurobonds, which have been backed by France, Spain and Italy, among others.

In a document published on Tuesday, they proposed issuing medium-term debt backed by all countries and a banking union with a single authority that would insure banking deposits and have the power to recapitalize banks directly.

However, Germany remains reluctant to accept the idea of eurobonds or a banking union as such moves would expose it more to the debt risks of weaker countries. Germany also worries that Europe's indebted countries would also have less reason to fix their public finances.

On Monday, Germany's Chancellor Angela Merkel indicated that she wasn't planning to change her position.

"She did not mince her words and if anyone had previously doubted her resolve to stick to her course then those doubts may well have been removed," said Gary Jenkins, managing director at Swordfish Research.

"One would imagine that any optimism amongst officials that this week could see short term measures introduced to help calm the market disappeared with every word Merkel spoke," Jenkins added.

After suffering heavy losses on Monday, European indexes failed to rebound significantly. Germany's DAX was up 0.2 percent at 6,145 while the CAC-40 in France rose 0.1 percent to 3,024. The FTSE 100 index of leading British shares was 0.1 percent higher at 5,459.

The euro was also failing to make much headway, trading more or less flat around the $1.25 mark.

Wall Street was poised for a muted open, with both Dow futures and the broader S&P 500 futures up 0.2 percent.

Also limiting any market recovery was the news that Spain had to pay substantially higher borrowing rates to borrow (euro) 3.1 billion ($3.9 billion) after Moody's downgraded 28 of the country's banks.

Meanwhile, Cyprus made an official request to tap Europe's bailout fund for money to support its banks. Cyprus did not yet ask for a specific amount, but analysts estimate it will be between (euro) 5 billion and (euro) 10 billion.

"After three days of negative trading, European sentiment is stopping any major rally from happening," said Simon Furlong, a trader at Spreadex.

Earlier, Asian markets mostly closed lower amid worries over Europe's debt crisis. Japan's Nikkei 225 index fell 0.8 percent to close at 8,663.99 while South Korea's Kospi was 0.4 percent lower at 1,817.81. But Hong Kong's Hang Seng rose 0.5 percent to 18,981.84.

Oil markets were subdued too with benchmark crude down 10 cents to $79.11 in electronic trading on the New York Mercantile Exchange.

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