By Marius Zaharia
LONDON
(Reuters) - European shares fell and borrowing costs for the euro
zone's most indebted states rose on Monday as the leftist Syriza party
looked set to take on Greece's international lenders after a crushing
victory in early elections.
Syriza
leader Alexis Tsipras promised Greeks on Sunday that the five years of
austerity imposed under bailout programs worth 240 billion euros from
the European Union and the International Monetary Fund were over.
The
euro stabilized, but held close to an 11-year low against the dollar
hit in Asian trade. The Greek election result is a second blow to the
single currency after the European Central Bank launched a
money-printing program last week.
But
the ECB's quantitative easing scheme, which surprised many investors
with its size and scope, helped ease fears of fresh instability in
Europe. Expectations that a compromise can be reached between Athens and
its lenders, keeping Greece in the euro, also supported investor
sentiment.
"The
QE announced last week has gone some way to prop up the markets but the
implications of a 'Grexit' will continue to linger," said Tom
Robertson, senior trader at Accendo Markets.
The
FTSEurofirst 300 index of top European shares was down 0.3 percent at
1,475.49 points, mirroring a similar fall in Asian markets.
Yields
on lower-rated euro zone bonds bounced off record lows, with Italian
10-year yields up 1 basis point at 1.53 percent and Spanish and
Portuguese yields 2 bps higher at 1.39 percent and 2.26 percent,
respectively.
Greek
markets suffered more. Ten-year yields rose 22 basis points to 8.99
percent, while Greece's main stock index fell 0.5 percent, with shares
in banks such as Alpha Bank and Piraeus Bank hit even more.
Renegotiating
the deal could lead to a stand-off between Athens and other euro zone
leaders and raise fears of "Grexit", although the consequences of such a
move for Europe are likely to push policymakers to find an agreement.
"(German
Chancellor Angela) Merkel may prefer to see Greece leave the euro zone
than allow Mr Tsipras to dictate the entire economic policy of the euro
area, although the most likely outcome remains a compromise which
maintains the status quo because the alternatives are potentially so
negative," said Gary Jenkins, chief credit strategist at LNG Capital.
"The
unknowns of withdrawing from the euro zone are such that Mr Tsipras
might rather prefer to take his time through negotiation and continue to
enjoy the benefit of the QE program."
Unlike
at the height of the debt crisis in 2011-12, European banks also now
have limited exposure to Greece, and policymakers have set out safety
nets to deal with renewed contagion.
The euro fell as low as $1.1098, before recovering to trade higher on the day at $1.1224. [FRX/]
"The
fact that the ECB’s QE program has already been announced is positive
for credit spreads and limits the damage on the euro," said Stephen
Gallo, European head of FX strategy with Bank of Montreal in London.
Safe-haven
assets were in favor with the German 10-year Bund yield, which sets the
standard for euro zone borrowing costs, falling below 0.30 percent for
the first time.
Elsewhere,
oil slid more than 1 percent on Monday, with U.S. crude falling close
to a six-year low. March Brent crude fell 58 cents to $48.22 a barrel,
wiping out light gains made on Friday after the death of Saudi King
Abdullah, but it was off an early low of $47.85. [O/R]
Copper dropped to as low as $5,345 per tonne, its lowest level in 5-1/2 years.
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