TOKYO Shares and the euro fell yesterday after Moodys warned it could downgrade top-rated sovereigns including Britain, reminding investors that Europe is still deeply mired in a debt crisis despite Athens steps to avoid a disorderly default.
European shares were expected to remain subdued, with financial spreadbetters expecting Britains FTSE 100, Germanys DAX and Frances CAC-40 to open between minus 0,1 to plus 0,1%.
The Bank of Japan surprised markets by loosening monetary policy further, boosting its asset buying and lending scheme to add more liquidity as it bowed to political pressure for bolder action to beat deflation and support the economy.
MSCIs broadest index of Asia Pacific shares outside Japan shed as much as 0,9%, and last stood down 0,5%. Japans Nikkei, on the other hand, turned positive to rise 0,7% after the BOJs announcement.
The euro was down 0,2% at $1,3166 and the British pound shed as much as 0,6% to $1,5707, after ratings agency Moodys said it may cut the AAA ratings of France, Britain and Austria, while downgrading Italy, Portugal, Spain, Slovakia, Slovenia and Malta.
Asian markets actually followed the news about downgrades in those European countries, as markets realised there is no resolution yet and revived worries over the European problem, said Frances Cheung, senior strategist for Asia ex-Japan at Crdit Agricole CIB in Hong Kong.
The negative outlook to the UK, which was previously quite immune because it is not a member of the eurozone, also created a little bit of concern, because it seems it is affected.
The Moodys news weighed on already weak market sentiment as investors worried about Athens ability to pursue harsh reforms in exchange for crucial aid. Relief over parliamentary passage of an austerity bill faded as intensifying violence across the country underscored the tough challenges ahead in Greece.
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The bills passage was only one of the three conditions for granting a new 130 billion bailout, a lifeline for Greece to ride out a major bond redemption on March 20.
Europe gave Greece until today, when eurozone finance ministers are expected to meet, to specify how 325 million of the 3,3 billion demanded in budget savings will be achieved and to give a written commitment to implement the terms of the deal.
Provided there are no further setbacks at the EU meeting today, terms of a bond swap deal with private bond holders to ease Greeces debt burden would then be announced.
Market uncertainty remains high, since a number of steps remain to ensure that there is no disorderly default in the near term, Barclays Capital said in a note, adding that Greek parliamentary elections in April would make implementation risks of the austerity measures particularly challenging.
