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Tuesday, December 7, 2021

Asian shares rebound from Cyprus bailout scare, vote eyed

By Chikako Mogi

TOKYO (Reuters) – Asian shares rebounded on Tuesday from the previous session’s steep falls — although losses in safe-haven assets were limited — as investors remained wary over a bailout plan for Cyprus set to face a parliamentary vote later in the day.

Confidence was partially restored by news on Monday that the Eurogroup decided to give Cyprus more flexibility over a bank levy which is part of the bailout conditions, after a teleconference of euro zone finance ministers.

A Greek finance ministry source said Cyprus would still need to raise 5.8 billion euros from the levy as planned, but could exempt smaller savings accounts from the levy than first planned.

“The worry about Cyprus is overdone, as the scenario there is unlikely to spread to bigger euro zone countries. Global markets were due for a correction after last week’s long rally,” said Lee Young-gon, an analyst at Hana Daetoo Securities.

The MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.5 percent after slumping 1.5 percent to its lowest level since January 2 for its steepest one-day fall in two weeks on Monday.

South Korean shares <.KS11> led the pack with a 1 percent jump, as bargain hunters drove the market up from Monday’s one-month lows, while Australian shares <.AXJO> added 0.1 percent, effectively maintaining Monday’s 2 percent loss.

Japan’s Nikkei stock average <.N225> gained back 2 percent after shedding 2.7 percent for its biggest one-day percentage drop in 10 months on Monday as the yen rose broadly. Japanese financial markets will be closed on Wednesday for a holiday. <.T>

Benchmark 10-year U.S. Treasury yield inched up 1 basis point to 1.967 percent in Asia while 10-year Japanese government bond yields also added 1 bps to 0.595 percent.

Spot gold eased 0.1 percent to $1,603.55 an ounce after climbing as much as 1 percent to a three-week high on Monday.

As a knee-jerk flight to safety subsided for now, the dollar steadied around 82.682 against a basket of major currencies <.DXY>, after inching closer on Monday to a seven-month high of 83.166 hit last week.

Global stock markets and broad risk assets fell on Monday following the euro zone’s decision over the weekend to partially fund a bailout of Cyprus by taxing bank deposits, which raised fears the measure could set a precedent for future euro zone bailouts, and destabilize its financial system.

“While there still is uncertainty over Cyprus ahead of the vote, markets for now see it as a one-off case that will not trigger a contagious run on deposits in other euro zone states,” said a senior official at a Japanese institutional investor.

“But I fear this could elevate hurdles for Germany to approve burden sharing in future bailouts when the euro zone faces another financial crisis,” he said, referring to how Germany has been pushing for strict conditions in exchange for rescue funds.

The initial proposal to bail out Cyprus required the island state to levy individuals’ savings accounts, an unprecedented plan which alarmed policymakers outside Europe.

“It is, in a way, a prohibited measure. I acknowledge it is a request from the EU and the IMF but it needs to make sure (other nations know) this is an exceptional measure. If this happens to other nations, it would cause significant agitation,” Japanese Economics Minister Akira Amari told reporters on Tuesday.

GLOBAL JITTERS

The declines gave U.S. equities investors the opportunity to take profits after last week’s extended rally. Investors also awaited the U.S. Federal Reserve’s policy meeting on Tuesday and Wednesday for the Fed’s assessment of recent positive U.S. economic indicators and signs it may consider scaling back its very accommodative monetary stance.

European shares fell on Monday, slipping further from multi-year highs achieved last week, hitting shares in southern European lenders the hardest, while Italian and Spanish bond yields jumped on Monday. Safe-haven German bond yields hit 2013 lows.

The euro hit a three-week low of $1.2882 on Monday but was trading at $1.2956 early on Tuesday in Asia.

The Thai baht on Tuesday hit its strongest since 1997 Asian financial crisis on sustained inflows despite worries about a bailout plan for Cyprus as some investors saw the euro zone issues as unlikely to affect appetite for Thai assets.

U.S. crude oil inched up 0.1 percent to $93.85 a barrel while Brent eased 0.2 percent to $109.35.

(Additional reporting by Somang Yang in Seoul and Kaori Kaneko in Tokyo; Editing by Eric Meijer)

Source: Reuters

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