Markets cheered by Greece progress

Asian stock markets struggled but European shares advanced today as fears that Italy could become the next domino to fall in Europe’s debt crisis were muted by Greece edging back from the brink.

Benchmark oil hovered near $96 per barrel, while the dollar fell against the euro and the yen.

Stocks in Europe gained in early trading. Britain’s FTSE 100 rose 0.8% to 5,552.21 while Germany’s DAX was 1% higher at 5,986.18 and France’s CAC-40 added 0.9% to 3,129.43.

Wall Street was headed for a lower opening, with Dow Jones industrial futures down 0.1% to 1,256.50 and S&P 500 futures losing 0.1% to 1,256.50.

In Asia earlier in the day, stocks struggled to make headway. Japan’s Nikkei 225 index fell 1.3% to close at 8,655.51, and South Korea’s Kospi swung into negative territory midday to close 0.8% down at 1,903.14.

Hong Kong’s Hang Seng was nearly unchanged, closing less than 1 point higher at 19,678.47. Australia S&P/ASX 200 rose 0.5% to settle at 4,293.80.

Mainland Chinese shares slipped, with the benchmark Shanghai Composite Index edging down 0.2% to 2,503.84 while the smaller Shenzhen Composite Index dropped 1% to 1,054.73.

Wall Street finished higher yesterday on news that Greece would receive the latest instalment of emergency aid as long as the country’s two main parties commit to implementing economic reforms agreed to by the country’s previous government.

The Dow rose 0.7% to close at 12,068.39. The Standard & Poor’s 500 index rose 0.6% to 1,261.12. The Nasdaq rose 0.3% to 2,695.25.

Francis Lun, a Hong Kong-based analyst, said Greece’s willingness to implement changes demanded by the European Union – and hopefully prevent the country from descending into insolvency – helped some markets eke out slight gains.

“Markets rose slightly today mainly because I think Europe managed to temporarily solve the problem,” he said. “Investor confidence has been restored. They went bargain-hunting.”

Further gains could come tomorrow with the release of monthly inflation data from China. Price increases are expected to moderate, reinforcing expectations that the government will refrain in the near-term from monetary tightening.

“China’s number should fall below 6% because the price of pork has been falling sharply this month,” Mr Lun said. “That one item alone will bring the CPI figure below 6%. That means policymakers can breathe a sigh of relief that high inflation has peaked.”

Meanwhile, as Greece’s economy limped along on life support, worries began to surface about Italy, where the prospect of financial disaster was real because of Rome’s huge debts and slow growth.

Unlike Greece, Ireland and Portugal – the three countries that Europe has already bailed out – Italy’s economy could be too large to rescue.

Soaring borrowing rates in the past week have intensified pressure on Premier Silvio Berlusconi to resign.

The yield on Italy’s 10-year bonds jumped yesterday to 6.67%, drawing uncomfortably near the 7% threshold that forced both Ireland and Portugal to accept bailouts.

“Traders do not want to see yields advance to 7% and above, after the fate suffered by the likes of Greece, Ireland and Portugal when their yields rose to those levels,” Stan Shamu, of IG Markets in Melbourne, wrote in a report.

Investors want the Italian government to quickly pass measures to boost growth and cut debt. But defections from Mr Berlusconi’s coalition government mean he no longer commands enough loyalty to pass the reforms.

In Tokyo, embattled Olympus plummeted 29% after admitting it had used a series of acquisitions to cover up losses dating back to the 1990s.

Japan’s exporters continued to be battered by sustained strength in the yen, which reduces overseas profits. Copier maker Ricoh fell 3.3%, technology company Fujitsu dropped 3.8% and Hitachi lost 2.3%.

In mainland China, power utilities and coal companies led the gains while shares in property, cement and media companies weakened.

“Premier Wen Jiabao comments on keeping property-tightening in place was overshadowing the market, along with profit-taking,” said Cai Dagui, an analyst at Ping’an Securities, based in Shenzhen.

Shanxi Coking Co hit the daily limit of 10% while Shanghai Electric Power Co gained 4.4%.

Hong Kong-listed property shares also slumped. China Overseas Land & Investment fell 5% while China Resources Land lost 3.6%.

In energy trading, benchmark crude for December delivery was up 40 cents at $95.91 in electronic trading on the New York Mercantile Exchange. The contract rose 1.26 dollars to settle at 95.52 dollars in New York yesterday.

The euro was higher at $1.3776 from $1.3761 yesterday in New York. The dollar was slightly lower at 77.97 yen from 78.02 yen.