Cyprus deal shakes global markets

Cyprus deal shakes global markets

* Investors fear contagion as bailout hits depositors; Cyprus banks to remain closed

Global stock markets edged lower on Monday as concerns over European sovereign debt returned to the forefront after the euro zone’s decision on partially funding a bailout of Cyprus by taxing bank deposits.

The declines gave US equities investors the opportunity to lock in profits after an extended rally last week,but losses were limited as buyers came in after the early selling. Financial shares were among the day’s biggest losers.

The Cyprus move hit confidence in the European banking sector,sparking concerns that authorities might go after depositors in other euro zone nations. The euro and bonds of troubled European sovereign debtors also fell.

The bloc struck a deal on Saturday to give Cyprus rescue loans worth 10 billion euros ($13 billion),but defied warnings,including from the European Central Bank,and imposed a levy that would cost those with cash in the island’s banks between 6.75 and 9.9 percent of their money.


“The issue ultimately for investors is: ‘Is this going to cause contagion?’,” said Quincy Krosby,market strategist at Prudential Financial in Newark,New Jersey. European officials “have got to make clear this is Cyprus-specific and contain the risk.”

The initial response of investors was unambiguous. European shares followed Asian indexes lower and the euro fell to a three-month low,while safe-haven assets such as gold and German and US government bonds jumped.

Italian and Spanish bond yields both rose sharply,reflecting fears about the weakness of the two euro zone economies and the size of their debt burdens.

European shares closed 0.3 per cent lower,having at one point been down as much as 1.4 per cent. London’s FTSE 100 ,Frankfurt’s DAX and Paris’s CAC-40 were down 0.5 per cent,0.4 per cent and 0.5 per cent respectively,leaving MSCI’s global share index down 0.8 percent.

In the US,the Dow Jones industrial average was down 6.80 points,or 0.05 per cent,at 14,507.31. The Standard & Poor’s 500 Index was down 3.16 points,or 0.20 per cent,at 1,557.54. The Nasdaq Composite Index was down 2.11 points,or 0.06 per cent,at 3,246.96.

Island nation reworks divisive bank tax,delays vote

NICOSIA: Cypriot ministers scrambled to revise a plan to seize money from bank deposits before a parliamentary vote on Tuesday that will either secure the island’s financial rescue or threaten its default. Before Tuesday’s vote,which is too close to call and would send reverberations across the currency zone if lost,the government was working to soften the blow to smaller savers by tilting more of the tax towards those with deposits greater than 100,000 euros.

The decision to target bank accounts stunned Cypriots,and police sealed off parliament in Nicosia as about 400 people staged a noisy protest outside,aggrieved that their small island of one million people should be singled out for such treatment.

Angry demonstrators honked horns and waved placards reading “Hang the Banksters,Hands off People’s Savings” and “Merkel go home and stay”. Residents emptied cash machines over the weekend. The move also unnerved depositors in the euro zone’s weaker economies and investors feared a precedent had been set that could reignite turmoil that the European Central Bank has calmed in recent months with its pledge to do whatever it takes to save the euro.

Banks will remain closed on Tuesday and Wednesday to avert any panic.

Sensex down 134 points

Mumbai: The Sensex on Monday slumped by 134.26 points to end at nearly two-week low of 19,293.20 as a proposed bailout of Cyprus rattled global markets. The BSE Sensex moved in a narrow range in negative terrain throughout the day to settle at 19,293.20. The NSE Nifty fell by 37.35 points to close at 5,835.25. PTI