Asian shares fell and the euro slipped to a three-week low today as another delay in cementing a crucial bailout for Greece underscored how far Europe is from resolving a debt crisis that threatens the stability of the financial system.
A three-hour teleconference between euro zone finance ministers failed to resolve all the issues surrounding a second aid package for Athens, putting off any decision on the matter until Monday at the earliest.
"It's not clear whether Athens will be able to secure funds needed to redeem bonds on March 20th," said Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ.
Financial bookmakers expected European stocks to follow Asian shares lower, with financial spreadbetters calling the main indexes in London, Paris and Frankfurt to open down by 0.8 per cent to 1 per cent.
US Treasuries and the dollar edged up as investors sought safety, while riskier commodities lost ground.
"It ... seems that the market is in review mode now after the strong gains in risk assets with investors re-assessing the risks/rewards and reviewing strategies," said Chris Weston, an institutional dealer at IG Markets in Melbourne.
MSCI's broadest index of Asia Pacific shares outside Japan fell 1.5 per cent, more than wiping out all the gains made in the previous session, when riskier assets such as stocks and emerging Asian currencies rose broadly on hopes Athens would finally be granted the rescue funds.
Japan's Nikkei outperformed its Asian peers to record a six-month high, before losing steam to close down 0.2 per cent.
The euro slid 0.4 per cent to touch a three-week low near $1.30 as uncertainty over the bailout package put the single currency under renewed pressure.
Reflecting deep-rooted mistrust of Greece's commitment to deliver reforms in exchange for the rescue, several EU sources said yesterday that euro zone finance officials were examining ways of delaying part or even all of the second bailout program while still avoiding a disorderly default.
Delays could possibly last until after the country holds an election expected in April, they said.
A debt swap agreement between Greece and private-sector holders of Greek bonds, however, could go ahead, possibly allowing Greece to avoid missing the March 20 deadline to pay a €14.5 billion bond redemption payment.
Greece said it has met all the conditions set by the European Union and the International Monetary Fund for a €130 billion rescue fund needed to meet the vital debt repayment date in March.
As well as hitting stocks, the jitters over Europe put other riskier assets under pressure. Copper lost more than 1.5 per cent and oil also fell, while the commodity-linked Australian dollar edged down.
Asian credit markets weakened, another sign of faltering confidence, with the spreads on the iTraxx Asia ex-Japan investment grade index widening by about 5 basis points.
The safe-haven dollar rose 0.2 per cent against a basket of major currencies, while the yield on benchmark 10-year Treasury debt eased to 1.91 per cent from 1.93 per cent in late US trade.
But while markets fell, the drop appeared to be limited.
"The weakness was neither intense nor broad-based enough to resemble a 'risk-off' event; markets seemed tired, but not afraid," Barclays Capital said in a note.
Data yesterday showed the euro zone economy shrank at the end of 2011 and a mild recession was likely as the debt-stricken south reels under the weight of the sovereign debt crisis. Bigger economies France and Germany may remain resilient.
US crude eased 0.3 per cent to $101.48 a barrel today after gaining more than a dollar the day before. Brent crude was little changed around $118.90, after scaling an eight-month high yesterday on concerns over supply disruptions.
Reuters
