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Markets nosedive amid Greek fears

By Symon Ross

Published 05/05/2010

The euro slumped to a one-year low and stock markets nosedived as nervous investors panicked that the Greek debt crisis could spread to other countries.

The European single currency fell below $1.31, its lowest level since April last year and also lost ground against the pound and other major currencies as traders worried the €110bn effort to bail out the Greek economy may not be successful.

As Greeks staged a one-day strike London's FTSE 100 Index and other global markets plunged into the red.

The Footsie fell more than 2% at one stage, while the Dow Jones Industrial Average on Wall Street tumbled 1.5% soon after opening.

The slide came despite an agreement reached over the weekend to provide Greece with a three-year rescue package that EU leaders had hoped would restore investor confidence.

But the euro tumbled as Greek government workers shut down schools and hospitals and demonstrators occupied the Acropolis in an escalation of protests against €30bn of additional wage cuts and tax increases unveiled this week.

Prime Minister George Papandreou has called on Greeks to endure more sacrifices in return for the bailout from the EU and the International Monetary Fund.

The euro has lost an average 6.5% of its value against the world's other major currencies this year amid concern that Greece's fiscal woes will push up borrowing costs for other nations. Irish, Portuguese and Spanish bonds fell on speculation the Greek aid package would not end the region's fiscal trouble.

"The ECB's credibility has been shot to pieces, and we've yet to see the political fallout from the Greek bailout," said Steven Barrow from Standard Bank in London.

James Hughes, markets analyst at CMC Markets, said the General Election was also adding to uncertainty among UK investors.

"Bailout or not contagion is definitely the talk of the town," he said. Meanwhile, Spain's Prime Minister José Luis Rodríguez Zapatero yesterday attacked rumours the country would be forced to ask for a €280bn bailout as "complete madness".

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