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Asian shares, euro spooked by Cyprus bailout details

Reuters
Mar 26, 2013 at 09:24am IST

Tokyo: Asian shares fell and the euro was capped on Tuesday as investors contemplated potential flow-on risks from the Cyprus bailout scheme. Large uninsured depositors and bondholders will bear heavy losses in the bailout, which Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, said represented a new template for euro zone and other countries which may have to restructure their banking sectors.

Initial rallies in global equities and the euro fizzled after Dijsselbloem's remarks, as they raised the prospect of shifting more risk to depositors and stakeholders in future. While the bailout will avert collapse of the Cypriot banking system and keep Cyprus within the euro zone, the agreement set a painful precedent for the region.

"Dijsselbloem's comments reminded investors of what they had feared in the first place - some sort of ripple effect from the Cyprus case," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.

Asian shares, euro spooked by Cyprus bailout details

The euro was at $1.2856, after sliding more than 1 per cent against the dollar and hit a four-month low of $1.28295 on Monday.

"It fed suspicion in the markets that this scheme could indeed become a precedent for other euro zone member states."

The euro was at $1.2856, after sliding more than 1 per cent against the dollar and hit a four-month low of $1.28295 on Monday. The single currency was capped by its 200-day moving average which stood at $1.2880.

Saito said the euro could be supported by short-covering and repatriation before the end of the first quarter, but renewed concerns about the euro zone's financial system likely set a ceiling at $1.30. The euro hit a session high of $1.3050 on Monday.

The MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2 per cent after gaining more than 1 per cent on Monday from the Cyprus deal. Australian shares fell 0.7 per cent as investors sold miners and financials in response to weaker metal prices and new worries about the prospects for Cyprus and the eurozone.

South Korean shares opened nearly flat after jumping 1.5 per cent on Monday. Japan's Nikkei stock average opened down 0.7 perc ent after closing up 1.7 per cent and inched closer to a 4-1/2-year high the day before.

Revived pressure on the euro helped lift the dollar index, measured against a basket of major currencies, towards a 7-1/2 month peak of 83.166 set earlier this month. Against the yen, the dollar was at 93.99, having touched a low of 93.53 yen on Monday, barely above a recent low of 93.45 seen earlier this month.

US crude futures inched down 0.1 per cent to $94.73 a barrel. After reaching an 11th-hour deal with the European Union, the European Central Bank and the International Monetary Fund to shut down the country's second largest bank in return for 10 billion euros in rescue funds, the president of Cyprus assured citizens the bailout deal was in their best interests. But banks will remain closed until Thursday and even then subject to capital controls to prevent a run on deposits.

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