Global stocks fall, euro hits new one-year low

Pictures of violent demonstrations in Athens, where three people were killed in a bank firebombing, rattled investors who fear a 110-billion-euro (145-billion-dollar) EU-IMF bailout for Greece could prove insufficient and will fail to shield Spain and Portugal from crippling market pressures.

"The social situation will remain very challenging as long as the economy continues to perform badly and unemployment remains high," said IHS Global Insight analyst Diego Iscara.

"Worryingly, this is the most likely scenario. Increasing social tensions will not only risk the stability of the government but they also mean that the reforms the economy badly needs to be more competitive and sustainable will be more difficult to achieve."

The deeply unpopular wage cuts and tax hikes the Greek government wants to implement would be in exchange for eurozone and International Monetary Fund loans to help Greece pay off its huge debts.

The deal was approved by eurozone finance ministers Sunday and is awaiting final backing from their parliaments.

But market reaction since then has been resoundingly negative.

In the wake of big losses on Tuesday the FTSE 100 index fell a further 1.28 percent to close at 5,341.93 points. In Paris the CAC 40 fell 1.44 percent to finish at 3,636.03 while in Frankfurt the DAX lost 0.81 percent to end at 5,958.45 points.

Elsewhere there were losses of 2.27 percent in Madrid, 3.9 percent in Athens, 1.27 percent in Milan and 1.52 percent in Lisbon.

Asian markets lost ground and Wall Street too was not immune to the Greek debacle.

Dow falls

The Dow was down 59.94 points (0.55 per cent) recouping some earlier losses to stand at 10,866.83 in closing trades.

The Nasdaq composite was down 21.96 points (0.91 per cent) to 2,402.29 and the Standard & Poor's 500 index was down 7.72 points (0.66 per cent) to 1,165.88.

"The fixation on the European situation is unmistakable," said Patrick O'Hare of Briefing.com.

The euro remained under heavy pressure, sliding to 1.2887 dollars from 1.2988 late Tuesday in New York.

The single currency at point fell to 1.2804 dollars, its lowest reading since March 12, 2009.

"The announcement of the Greek (rescue) package has failed to break the negative momentum in asset markets and it is unclear what can stabilise sentiment," said Adarsh Sinha of Barclays Capital.

He said a strong and positive statement on Thursday from the European Central Bank following a meeting of its policymakers could help calm jittery nerves, "as would the smooth disbursement of aid to Greece over the next few weeks."

"But medium-term concerns about the implementation of Greece's austerity measures and risks for other countries are unlikely to go away soon."

Contagion fears are focused on Spain and Portugal, both of which are saddled -- like Greece -- with big public deficits and are considered vulnerable to the sort of speculative market attacks that have targeted Athens.

Both countries suffered a ratings downgrade last week from Standard & Poor's. But the debt burden carried by Spain and Portugal is considerably less than that on Greece.

"Even if the situation of state finances in Portugal and Spain is not remotely comparable with the situation in Greece, it is becoming increasingly obvious that the aid for Greece has solved a short term problem while longer term issues may not have been banished," said experts at Commerzbank.

"In any case, markets seem to have made up their mind about the Eurogroup's approach towards the crisis and have clearly not been convinced."

Reflecting increased market tension, the interest rates Greece, Portugal and Spain would have to offer to raise new money on bond markets widened on Wednesday.

The yield on the 10-year Greek sovereign bond rose to 10.025 percent from 9.168 percent on Tuesday, while that on Portuguese 10-year paper went to 5.762 percent from 5.386.

The rate on Spain's 10-year sovereign bond widened less dramatically, moving to 4.196 percent from 4.113 percent.