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Market volatility continues on confusion over reported Merkel and Sarkozy statement on Greece

The volatility in markets is continuing to a frightening degree.

After earlier gains on talk that China might buy Italian bonds to support the country, shares fell back as doubts were cast on the tale. Then came a revival following reports there would be a joint statement from France and Germany later on Tuesday which will provide support for beleaguered Greece.

The euro extended gains against the dollar, Germany’s Dax climbed more than 1% and the FTSE 100 moved into positive territory after earlier falls. Even France’s Cac, hit by declines in banks due to worries about their exposure to Greek debt if the country defaults, edged higher.

But this was swiftly followed by rumoured denials of any Franco-German initiative, and the FTSE 100 is now 3.01 points lower at 5126.61.

Despite EU officials trying to play down talk of Greece defaulting, the market does not seem to believe it. On top of that, Italy is due to debate its latest budget in Parliament on Wednesday, while a key meeting of EU officials in Poland on Friday will see the presence – unusually – of US Treasury secretary Timothy Geithner. This shows how concerned the US is about the debt crisis in Europe, amid fears that US banks could be hit by any defaults.

Meanwhile an Italian bond auction saw 5 year yields jump from 4.93% to 5.6%, their highest level since the launch of the euro.

And we are still waiting for the expected downgrades of French banks by Moody’s. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds