Markets cautious as Greece seeks debt relief deal

LONDON (AP) — Markets were mostly lower Friday as investors awaited developments from Athens, where the Greek government is in talks with private creditors on a debt relief deal that could determine whether Europe's financial crisis flares up again.

While meeting with debt inspectors from the European Union, the European Central Bank and the International Monetary Fund, the Greek government is also holding a third day of talks with creditors over a deal to get them to reduce the value of their Greek bond holdings. The country wants creditors to agree a euro100 billion ($129 billion) writedown.

"The atmosphere of the talks is good, they are continuing today and we hope they will be concluded very soon," government spokesman Pantelis Kapsis told private Radio 9. "This is very important for the sustainability of the national debt and our ability to handle the debt."

Heads of the inspection team are meeting with senior government officials ahead of the next round of discussions with the creditors, due to begin 7.30 pm local time (1730 GMT). An agreement is necessary if Greece is to get the next batch of bailout cash that would prevent a devastating debt default — Greece does not have enough money to cover a euro14.5 billion bond repayment in March.

Last October, Greece's partners in the eurozone sanctioned a deal whereby private creditors would take a cut in the value of their bond holdings to help lighten the country's debt burden.

Hopes for such a deal as well as a run of successful European bond auctions and solid economic and corporate news, not least from the U.S. and China, have helped shore up market sentiment in recent days. Many stock indexes have risen to five-month highs, while the euro has clambered off 17-month dollar lows.

Having booked such gains, investors were more cautious on Friday.

"After seeing strong gains this week, stock indices are showing signs today of some exhaustion," said Sandy Jadeja, chief technical analyst at City Index.

In Europe, the FTSE 100 index of leading British shares closed 0.2 percent lower at 5,728.55 while Germany's DAX lost 0.2 percent to 6,404.39. The CAC-40 in France fell by the same amount to end the day at 3,321.50.

The euro gave up some recent gains, and was trading 0.2 percent lower at $1.2938.

On Wall Street, the Dow Jones industrial average was up 0.4 percent at 12,667.72 but the broader Standard & Poor's 500 index fell 0.3 percent to 1,310.18.

Analysts warned that the recent optimism in the markets could disappear if Greece fails to successfully conclude its debt-reduction negotiations with the Institute of International Finance, which represents private sector bondholders.

A deal is unlikely to bring an end to Greece's debt problems, which is the heart of Europe's debt crisis.

Investors may conclude that a restructuring in Greece is not a one-off, but may be repeated in other debt-hobbled countries across the troubled 17-nation eurozone.

Ireland and Portugal have both been bailed out too. Portugal is widely-considered to be more at risk of needing further help than Ireland because of a lack of economic growth.

"There remains the danger for bondholders that at some stage Portuguese politicians decide to follow the Greek example," said Gary Jenkins, director of Swordfish Research.

Earlier in Asia in the last trading day before Chinese New Year holidays begin Monday, the Shanghai Composite Index climbed 1 percent to 2,319.12. Japan's Nikkei 225 index rose 1.5 percent to close at 8,766.36. Hong Kong's Hang Seng added 0.8 percent to 20,110.37 and South Korea's Kospi jumped 1.8 percent to 1,949.89.

Oil prices were in retreat after recent gains — benchmark oil for February delivery was down $2.14 to $98.25 per barrel in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this story.