)
European shares and the euro were flat on Tuesday, losing early gains as investors fretted that Cyprus's raid on bank deposits could become the template for future Euro zone bailouts.
Wall Street was expected to see a rebound from Monday's losses, meanwhile, with a flurry of data expected to
trump Euro zone concerns by supporting hopes of a gradual US recovery.
Banks in Cyprus remain closed following the country's 10 billion euro bailout agreed at the weekend, but
comments from Jeroen Dijsselbloem, the new head of the Eurogroup of Euro zone finance ministers, have
stripped investors of the appetite for the kind of rebound that has followed other rescue deals. Dijsselbloem said
on Monday the tactic used in Cyprus of getting wealthier savers and uninsured bondholders to bear heavy losses
represented a new template for resolving regional banking problems.
After a choppy morning, top European shares and MSCI's index of world shares, which tracks 6,000 stocks in
45 countries, were both flat on the day ahead of the Wall Street restart.
Investors continue to weigh the possibility that the euro zone crisis could escalate if savers in other debt-strained
countries such as Spain and Italy pull money out of their own banks as a precaution following the grab on
deposits in Cyprus. “Dijsselbloem comment's will stay the focus of markets,” said ABN Amro economist Joost
Beaumont.
“Markets are recovering a little bit, and with the ECB (European Central Bank) now the lender of last resort it is
hard to see a return to the depths of the crisis, but it is difficult to see a sharp rebound."
By 8:45 am EDT, Paris's CAC-40 was leading the way with gains of 0.6 per cent. London's FTSE 100 and
Frankfurt's DAX were up 0.2 per cent, though fears of tough conditions being attached to future bailouts were
being felt in Madrid, where the IBEX fell 1.5 per cent.
The decision to seize savings in Cyprus, as well as impose capital controls to prevent mass withdrawals once
banks do reopen, has added a new dimension to the Euro zone’s three year-long crisis.
Top ECB policymaker Benoit Coeure tried to assuage the concerns caused by Dijsselbloem's comments,
stressing the banking crisis in Cyprus was a unique case.
“I think Dijsselbloem was wrong to say what he said. The Cyprus experience is not a model for the rest of
Europe because the situation had reached a level which cannot be compared with any other country," Coeure said
in a radio interview.
<B>CAUTION AHEAD</B><BR>
Earlier, shares in Asia had edged lower but Wall Street was expected to rebound by around 0.2 percent as a 5.7
percent climb in durable goods orders in February got a busy day of U.S. data off to positive start. .N.
Economists polled by Reuters had expected orders to rise 3.8 percent after a 4.9 percent fall in January.
Investors in the bond and oil markets remained cautious. Safe-haven German government bonds held near highs
hit the previous session, while Brent crude dipped back to $108 a barrel, near last week's three-month low.
Alongside the fallout from Cyprus, euro zone investors are also facing a lengthy spell of political uncertainty in
Italy and an increasing divergence between strong European economies like Germany and its struggling neighbors.
French consumer confidence underscored the last of those worries, falling more than expected in March as
worries about surging unemployment mounted.
Having tumbled to a four-month low on Monday following Dijsselbloem's comments, the euro remained weak at
$1.2860 against the dollar. Measured against a basket of currencies, the dollar .DXY was also little changed.
<B>EURO WEAKNESS</B><BR>
The euro has largely held its ground during the recent turmoil in Cyprus, but the likelihood of depositors being hit
in future bank bailouts could drive it lower, analysts say.
"The developments yesterday were quite negative for the euro as it looks to be a bit of a change in policy
approach within Europe with respect to bailouts. They seem to be putting the emphasis onto investors rather than
taxpayers," said Ian Stannard, head of European FX strategy at Morgan Stanley.
"That is going to keep the euro under pressure as it could well deter foreign investors from returning to peripheral
European assets."
Gold, which typically benefits from economic uncertainty and has rallied during the Cyprus turmoil, fell back
below $1,600 an ounce.
The ECB's promise to keep the euro together has largely limited the fallout from Cyprus's problems and Italy's
political deadlock, and many economists see little reason for that to change in the near term.
"The reaction of the market has demonstrated clearly that the kind of problems in Cyprus could be contained, and
even an escalation of the crisis with all the possible outcomes from other periphery countries has not really dented
market confidence," Commerzbank gold analyst Eugen Weinberg said.
"We see prices consolidating at current levels around the key $1,600 mark."
