Greek worries push European markets down further

Columns of the Parthenon temple are seen behind a European Union flag in Athens, Greece, Nov. 4, 2011. AFP/Getty Images

(AP) LONDON - Fears that Greece might leave the euro currency union, with uncertain consequences for the rest of Europe, pushed the continent's markets down again on Thursday, though Asian stocks eked out gains thanks to good economic growth figures out of Japan.

Greece called another round of elections for June 17 after the last one proved inconclusive and coalition talks to form a government fell apart. Greeks gave strong support to parties that reject the country's international bailout and the tough austerity measures it comes with.

But without that rescue package, Greece will likely default and have to leave the 17-country eurozone. That would result in financial disaster for Greece and send shockwaves through European markets, destabilizing other weak countries.

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If an anti-bailout government is eventually established, it will set up a showdown with the country's creditors over the terms of the rescue loans. Germany and other European governments have so far shown little inclination to agree to a significant softening in Greece's austerity program.

As a result, the new elections are shaping up as a referendum on whether Greeks want their country to stay in the eurozone or not.

"The recent political paralysis has now brought Greece to what could prove to be the worst stage of its crisis," said Athanasios Vamvakidis, an analyst at Bank of America Merrill Lynch. "Although polls in Greece show very strong support for the euro, we believe that the current situation could trigger a chain of events that could lead Greece to exit on its own."

Adding to losses over the past two weeks, Britain's FTSE 100 fell 1.1 percent to 5,348.48 while Germany's DAX fell 0.6 percent to 6,346.88 and France's CAC-40 lost 0.9 percent to 3,022.54. The euro fell 0.1 percent to $1.2697, close to the yearly lows last hit in January.

Spain saw the sharpest drop, with the Ibex down 1.5 percent, as investors fear it would be the most destabilized by a Greek exit from the euro. A local report that depositors were drawing money out of the country's fourth-largest bank, Bankia, sent shares in the now-nationalized lender down 18.4 percent.

Spain's bond yields were also high, edging up to 6.29 percent for the 10-year note, an indication investors are worried about the country's financial future.

In the U.S., stocks were set for a moderately higher opening thanks to momentum from Wednesday, when economic indicators proved surprisingly upbeat - construction of homes in April rose 2.6 percent from March, and U.S. factory production increased 0.6 percent in April, helped by a gain in auto production.

Ahead of the bell, Dow Jones industrial average futures were up 0.1 percent at 12,590 while S&P 500 futures rose 0.1 percent to 1,324.30.

In Asia, markets enjoyed a slight rebound as investors went bargain-hunting after better-than-expected growth figures for the first quarter in Japan.

Tokyo's Nikkei 225 climbed 0.9 percent to close at 8,876.59 as the dollar was stable at 80.29 yen.

South Korea's Kospi added 0.3 percent to 1,845.24. Benchmarks in Taiwan, New Zealand and the Philippines also rose. Australia's S&P/ASX 200 slipped 0.2 percent to 4,157.40 and Hong Kong's Hang Seng closed 0.3 percent down at 19,200.93.

Mainland Chinese shares bounced back from early losses, buoyed by calls from the country's central bank governor, Zhou Xiaochuan, for market reforms.

The benchmark Shanghai Composite Index rose 1.4 percent to 2,378.89. The Shenzhen Composite Index also gained 1.4 percent to 954.95. Shares in brokerages, financial and trading-related companies led the gains.

Benchmark oil for June delivery was up 22 cents to $93.03 per barrel in electronic trading on the New York Mercantile Exchange. On Wednesday, the contract fell by $1.17 to finish at a seven-month low of $92.81 per barrel in New York.

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