* Greek crisis dominates financial markets
* Stocks add to Tuesday's sharp falls
* Euro hits one year low, then recovers
* Short-term Greek bond yields above 22 percent
By Jeremy Gaunt, European Investment Correspondent
LONDON, April 28 (Reuters) - Greece's exploding debt crisis
eclipsed all else on financial markets on Wednesday, knocking
down global stocks and pushing the euro for a time to a one-year
low against the dollar.
A day after ratings agency Standard & Poor's downgraded
Greek government debt to "junk" status, the 2-year Greek bond
yield rose above 22 percent, 10-year yields were over 900 basis
points above German ones, and Greece's Capital Markets
Commission banned stock short-selling. []
"The chances of a default by the Greek government are
increasing not by the day but by the hour. If the IMF and
European governments don't come up with something quickly, then
I see the market going down further quite rapidly," said Koen De
Leus, economist at KBC Securities.
He said the Greek crisis was clouding everything else on
financial markets.
"Investors are starting to react emotionally. In the current
environment, it's very difficult to impress with
better-than-expected earnings," he said.
World stocks as measured by MSCI <.MIWD00000PUS> were down
0.9 percent, having lost more than 2 percent on Tuesday. The
more volatile emerging market index <.MSCIEF> lost 1.4 percent
to add to a similar fall in the previous session.
European shares hit a five-week low a day after recording
their biggest one-day fall in five months.
The FTSEurofirst 300 <> index of top European shares
was down 0.7 percent. It tumbled 3.1 percent on Tuesday.
The crisis, which has been brewing for months but is now
entering what Deutsche Bank has called a death spiral, prompted
European Central Bank Executive Board member Juergen Stark to
call for action by European governments.
"The onus is now on governments to ensure that the crisis
that initially affected the financial sector, and subsequently
the real economy, does not lead to a full-blown sovereign debt
crisis," he said.
ECB President Jean-Claude Trichet and IMF chief Dominique
Strauss-Kahn will brief German political leaders on the latest
plans to help Greece.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For euro zone debt crisis in graphics, click on:
http://r.reuters.com/fyw72j
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
VOLATILE EURO
The euro, whose stability has been brought into question by
the crisis, hit a one-year low against the dollar in Asian trade
after falling 1.5 percent on Tuesday.
It later moved slightly back into positive territory for the
day as currency traders took stock of the overnight moves and
struggle to work out how to price in a currency from a monetary
bloc that now includes junk status.
It was at $1.3189 <EUR=>.
"This is all about the downgrades to Greece and Portugal.
Without a solution to internal European problems then the euro
downside will remain," said Dag Muller, strategist at SEB in
Stockholm.
He added the euro looked set to fall towards $1.29, although
it is likely to see some short-covering and brief bounces.
In fixed income markets, the premium investors demand to
hold Greek government bonds was at its highest since late 1996.
Traders reported attempts at forced selling by accounts that
could not hold "junk" rated paper, although no trades were
executed.
Portuguese/German 10-year government debt spreads widened to
310 basis points, a record for the euro's lifetime.
(Additional reporting by Atul Prakash and Jessica Mortimer,
editing by Mike Peacock)
