Eurozone fears place a cap on boost from German Q1 growth

Reuters and AFP

LONDON/HONG KONG — Surprisingly strong growth in Germany relieved pressure on shares and the single currency on Tuesday, but worries about the deepening impact of the euro area crisis and fears of a Greek exit kept demand for safe-haven assets strong. The German economy grew 0.5 percent in the first three months of the year, well ahead of forecasts due to a big rise in exports, but weakness elsewhere in the region meant the eurozone stagnated in the first quarter. European equities also bounced up from the start of trading, led by Germany’s DAX, but many major indexes were coming off 2012 lows hit on Monday.

The FTSE Eurofirst index of top European shares rose 0.5 percent at 1,009.12 points at the start of trading after sinking as far as 998.62 in the previous session, a level not seen since December before it began drifting lower again. “There’s a lot of uncertainty and you’re going to get wild swings on the market just on very small political noises,” Joe Rundle, head of trading at ETX Capital, said. Fears over the impact on financial markets of Greece exciting the euro, along with a slowdown in China, kept world share markets under pressure, with the MSCI world equity index down 0.15 percent at 309.74. Markets are now awaiting firm policy responses from key meetings during the day, between new French President Francois Hollande and German Chancellor Merkel in Berlin, and of all the European Union’s finance ministers (Ecofin) in Brussels. In Athens, Greek Party leaders are expected to convene at 1100 GMT, but there was little hope the latest proposal from President Karolos Papoulias to form a technocrat government would end the political deadlock. Asian shares mostly fell while the euro hit a four-month low on Tuesday amid growing concern about Greece’s eurozone future as talks on forming a government remain deadlocked. Dealers are also keeping an eye on Spain as the country’s banking sector comes under huge pressure while Italy saw the ratings of 26 of its lenders downgraded. Tokyo closed 0.81 percent, or 73.10 points, lower at 8,900.74 while Sydney fell 0.71 percent, or 30.7 points, to 4,266.3 and Seoul shed 0.77 percent, easing 14.77 points to 1,898.96. Shanghai was down 0.25 percent, or 5.88 points, to end at 2,374.84 but Hong Kong was up 0.81 percent, or 159.27 points, at 19,894.31 as it rebounded from eight successive losses. The losses were in line with Wall Street, which has also been infected by eurozone fear. The Dow fell 0.98 percent, the S&P 500 dropped 1.11 percent and the NASDAQ slipped 1.06 percent. European Commission President Jose Manuel Barroso said Greece should “leave the euro if it fails to respect the strict rules it agreed to. “I have a lot of respect for Greek democracy … but I also have to respect the other 16 parliaments,” he said in an interview with Italian news channel SkyTG24.