Cyprus uncertainty keeps markets in check
March 27, 2013 10:15 AM

LONDON (AP) — Sentiment in the world's markets remained fragile Wednesday, particularly with regard to the euro, as investors awaited the details of the capital controls Cyprus is expected to introduce when its banks reopen.

The country's banks, which have been closed for the best part of two weeks, are due to start doing business again on Thursday following an international bailout agreement that's caused jitters around the world — but particularly in Europe — over the safety of deposits. Under the terms of the bailout, Cyprus is closing its second-largest bank, Laiki, and raiding big deposits in it, as well as in Bank of Cyprus.

“Markets are eagerly waiting to read the Cypriot government's capital control measures,” said Alastair McCaig, market analyst at IG. “As capital control measures are still in place for Icelandic depositors following their banking collapse five years ago, it does call into question the Cypriot government's insistence that these will only be ‘temporary’.”

In Europe, the FTSE 100 index of leading British shares was down 0.7 percent at 6,355 while Germany's DAX fell 1.4 percent to 7,767. The CAC-40 in France was 1.6 percent lower at 3,690.

The euro also remained under pressure, trading 0.7 percent lower at $1.2768. The currency has been on the slide since a top European official said the Cyprus bailout may be a model for the future. Though others have since sought to dismiss that idea, the thought has unsettled investors.

“Despite the efforts of various eurozone politicians to reassure depositors that Cyprus's banking bail-in will not be used as a template, they will find it difficult to re-seal the can of worms,” said Jane Foley, senior currency strategist at Rabobank International.

In the U.S., the Dow Jones industrial average was down 0.6 percent at 14,479 while the broader S&P 500 index fell 0.5 percent to 1,555.

Earlier, Asian stocks fared better as they rose in the slipstream of Tuesday's advance in U.S. stock markets, which saw the S&P 500 edge up towards an all-time high and the Dow rise to a new record.

“It would seem that at least on Wall Street the bears are still in hibernation mode,” said Fawad Razaqzada, market strategist at GFT Markets.

Japan's Nikkei rose 0.2 percent to 12,493.79 while Hong Kong's benchmark Hang Seng index rose 0.6 percent to close at 22,464.82. In mainland China, the Shanghai Composite Index advanced 0.2 percent to 2,301.26 while the smaller Shenzhen Composite rose 0.3 percent to 955.24.

Oil prices tracked equities after hitting a five-week high on Tuesday — the benchmark crude rate for May delivery fell 34 cents to $96 a barrel.

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