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The euro gained versus the dollar by the most in two weeks after German Chancellor Angela Merkel agreed to compromise and work with the European Central Bank on a debt plan for Greece.
Currencies of commodity-exporting countries rose as stocks advanced, boosting appetite for higher-yielding assets. The MSCI World (MXWO) Index of equities added 0.8 percent as Merkel retreated from German demands that bondholders be forced to shoulder a “substantial” share of a Greek rescue, easing concern the region’s sovereign debt problems will worsen.
“The aim is involvement of the private sector on a voluntary basis, and for that the Vienna Initiative, as it’s called, is a good basis,” Merkel said. “I think we can achieve something on this basis.” A rollover involves reinvesting the proceeds from maturing bonds in new securities.
Adopting the Vienna plan, used during the financial crisis of 2009 for eastern European units of banks to maintain their exposure, would involve encouraging creditors to roll over expiring bonds, buying time for Greece until its austerity program shows results or until a permanent rescue fund kicks in from mid-2013.
Greek bonds rallied and European stocks reversed losses as attention shifted to Athens, where Prime Minister George Papandreou overhauled his Cabinet as he struggles to gain parliamentary approval for a 78 billion euro ($111.5 billion) five-year package of budget cuts and asset sales by July.
“The latest events seem to have eased some of the immediate market stresses concerning Greece and the periphery,” said Robert Lynch, head of currency strategy for HSBC Holdings Plc in New York. “Not only did it relieve downward pressure on the euro, but it’s also allowing some semblance of increased risk appetite back into the market.”
The euro-area’s currency fell earlier on concern a potential Greek debt default may spread to other indebted nations in the 17-member bloc. The euro reversed losses after French President Nicolas Sarkozy said a “breakthrough” had been made on the Greek debt crisis, following a meeting with Merkel, who said she’ll work with the European Central Bank to avoid disrupting markets.
The dollar remained lower after a report showed U.S. consumer sentiment was lower than forecast in June, while an index of leading economic indicators rose in May.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 71.8 from 74.3 in May. Economists forecast a reading of 74.
The Conference Board’s gauge of the outlook for the next three to six months rose 0.8 percent after a revised 0.4 percent decline in April, the New York-based group said today. Economists forecast a 0.3 percent gain.
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