U.S. Stocks Erase Losses, Australian Dollar Gains Versus Yen
By Michael P. Regan
May 21 (Bloomberg) — U.S. stocks erased losses and the Australian dollar rose versus the yen on speculation the rout in risky assets has overshot the potential damage from Europe’s debt crisis.
The Standard & Poor’s 500 Index slipped less than 0.1 percent to 1,071.09, erasing a drop of as much as 1.5 percent that dragged it below its weakest level during the May 6 market rout. The Australian dollar climbed 1.2 percent versus the yen and the euro rose 0.6 percent versus the dollar.
Financial stocks in the S&P 500 climbed 0.6 percent after yesterday’s 4.7 percent plunge.
Last Updated: May 21, 2010 09:55 EDT
German lawmakers back euro aid package
By Madeline Chambers and Jan Strupczewski
BERLIN/BRUSSELS (Reuters) – German lawmakers backed a $1 trillion safety net to stabilize the euro but world stocks slid further on Friday on fears Europe’s debt crisis and tougher financial regulation will choke economic recovery.
The Bundestag (lower house) approved Berlin’s contribution of up to 148 billion euros ($183.8 billion) in loan guarantees, deeply unpopular with voters, on top of an equally divisive 22.4 billion euros in bilateral loans for debt-ridden Greece.
The bill passed by 319 votes to 73 with 195 abstentions after the opposition Social Democrats and Greens abstained. The upper house (Bundesrat) also approved.
But the vote brought no relief for battered global stocks.
European shares extended losses to 2 percent on the day after Asian stock markets slid again. Japan’s Nikkei average closed 2.5 percent down for a loss of 6.5 percent on the week, mostly due to worries about the euro zone.
Before Wall Street opened, the U.S. S&P stock futures index briefly fell below 1,060, the level hit at the bottom of a still-unexplained sudden “flash crash” on May 6.
“It doesn’t make any difference what Germany does. It doesn’t make any difference what the financial reform is. Traders and investors are frightened here, and they just want out,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
Chancellor Angela Merkel’s center-right government failed to secure broad parliamentary backing to ease public hostility to bailing out weaker euro zone states despite unilaterally banning speculative trade in some financial instruments on Wednesday.
Indeed 10 members of her ruling coalition rebelled by either voting against the bill or abstaining, according to official voting records, highlighting the domestic pressure she faces.
The surprise German ban on naked short-selling of sovereign euro bonds and some financial shares sent stocks and the euro plunging this week and drew sharp criticism from EU partners, including close ally France, which were not consulted.
That prompted Merkel and French President Nicolas Sarkozy to pledge on Thursday to work together to solve the European debt crisis, support the euro and press jointly for global financial regulation.
European finance ministers and policymakers met in Brussels on Friday to discuss tightening the bloc’s tattered budget discipline rules and improving economic policy coordination in the 16-nation euro zone.
Berlin wants harsher sanctions on deficit sinners and an unprecedented insolvency procedure for states crippled by debt. No immediate decisions were expected but ministers from France, Sweden and Austria voiced support on arrival for German demands for stricter punishment of budget offenders.
“Today’s meeting is to co-ordinate economic policies. Obviously the decision taken in Germany …. was not an example of co-ordination,” Spanish Economy Minister Elena Salgado said pointedly in a radio interview.
Several euro zone governments have followed Athens in announcing or planning austerity measures to shore up their credit ratings and avoid having to seek a Greek-style bailout.
But real doubts remain about their ability to push through savage spending cuts in the teeth of public opposition.
The head of Spain’s largest union Comisiones Obreras (CCOO) said it could call a general strike to protest against planned austerity measures, probably for one day, although analysts regarded Greek-style unrest as unlikely.
WALL STREET OVERHAUL
The United States also took a big step closer to the most comprehensive overhaul of Wall Street rules since the 1930s after a financial reform bill cleared a final Senate vote.
The tougher rules are aimed at preventing a recurrence of the 2007-2009 crisis which plunged the global economy into a recession that it is still struggling to shake off.
The bill has to be merged with one from the U.S. House of Representatives but analysts said they expected President Barack Obama to sign the law as soon as next month.
France and Germany, co-founders of the euro, clashed over Berlin’s ban on naked short-selling. The Dutch parliament voted on Thursday to follow Berlin’s lead but the government called the move ineffective and may refuse to implement a ban.
A German spokesman said Merkel and Sarkozy had agreed to cooperate on euro zone growth strategies and coordinate their positions on world financial rules at a G20 summit next month.
The Franco-German patching up, along with short-covering, helped push the euro up as high as $1.26 on Friday from a four-year low of $1.2143 on Wednesday.
Euro zone policymakers brushed aside any talk of concerted intervention to steady the euro, which has lost 12 percent against the dollar this year.
French Budget Minister Francois Baroin said the euro was not in danger because Paris and Berlin were determined to save the single currency at all costs.
Luxembourg Prime Minister Jean-Claude Juncker, chairman of the Eurogroup of euro area finance ministers, and Ewald Nowotny, a member of the European Central Bank’s governing council, both dismissed worries about the euro’s level.
With the United States increasingly involved in trying to contain the euro zone crisis, U.S. Treasury Secretary Timothy Geithner will visit Europe next week, on his way back from a trip to China, and will meet the head of the European Central Bank and Germany’s finance minister.
Beijing also warned the crisis was creating global uncertainty.
(additional reporting by Holger Hansen in Berlin, Paul Day in Madrid, and Gilbert Kreijger in Amsteram; Writing by Paul Taylor and Miral Fahmy; Editing by Mike Peacock)