Asian markets mixed after Cyprus vote

PHOTO: Asian markets mixed after Cyprus vote

HONG KONG - Asian markets were mixed on Wednesday after Cypriot lawmakers comprehensively rejected a plan to tax savings as part of a crucial bailout deal, amid fears over the eurozone financial system.

The euro also slipped but avoided tumbling against the yen and dollar as European leaders sought to sooth investor concerns, saying they were willing to work with Nicosia to help it avoid bankruptcy.

Hong Kong rose 0.62 per cent, Shanghai climbed 0.90 per cent, while Sydney fell 0.73 per cent and Seoul lost 0.64 per cent.

Tokyo was closed for a public holiday.

On Tuesday MPs rejected a proposal to impose a levy on savings as part of a deal agreed with international creditors for a 10 billion euro (S$16.28 billion) rescue.

The plan had been to charge 6.75 per cent for deposits of 20,000-100,000 euros and a 9.9 per cent tax on anything above that. Savings of up to 20,000 euros would have been exempt.

Asian markets slumped on Tuesday after an initial deal was struck on Saturday that included a tax on all savers.

The 5.8 billion euros the levy proposal would have raised was crucial to Nicosia getting the full rescue. With that now in doubt Cyprus must now find other ways to raise cash to repay its debts.

However, while Tuesday's events raised fears the country could exit the eurozone, analysts said they soothed fears that such levies could be introduced in other troubled eurozone countries, which could have hammered confidence in the region.

And Dutch Finance Minister Jeroen Dijsselbloem said in a statement: "I confirm that the Eurogroup (of finance ministers) stands ready to assist Cyprus in its reform efforts" given Monday when it offered easier bank levy terms to reduce the impact on smaller savers.

The European Central Bank also said it would continue to provide financial support for troubled Cypriot banks, a key step to allow all sides a little more time to try to find a way out of the impasse.

But Stan Shamu, market strategist at IG Markets in Melbourne, offered a word of warning, saying: "The Cyprus issue is far from over.

"I don't think it will be a situation where the ECB has stepped in and we don't have to worry about it."

Media reports said the government may seek other ways of finding the money such as a bond issue, bank restructuring or Russian investment.

On currency markets the euro sank but hopes the crisis can be overcome provided some support.

In early trade the single currency bought US$1.2872 (S$1.61), down from US$1.2881 (S$1.62) in New York late Tuesday, while it sat at 122.30 yen (S$1.61) from 122.59 yen (S$1.62).

The dollar fetched 94.94 yen (S$1.25) from 95.23 yen (S$1.26).

On Wall Street markets were mixed, with the Dow nudging up 0.03 per cent, the S&P 500 falling 0.24 per cent and the Nasdaq off 0.26 per cent.

US traders took heart from expectations the Federal Reserve could on Wednesday deliver an improved view of the world's biggest economy.

Data Tuesday showed new housing starts rose 28 per cent in February, underscoring strength in the crucial US real estate sector.

The Fed's policy committee "may sound more upbeat this time around amid the more broad-based recovery", said David Song of DailyFX in the United States.

Oil prices rose, with New York's main contract, light sweet crude for delivery in April gaining 36 cents to US$92.52 (S$115.84) a barrel and Brent North Sea crude for May delivery increasing 37 cents to US$107.82 (S$135).

Gold was at US$1,611.40 (S$2017.47) an ounce at 0210 GMT compared with US$1,602.20 ($2005.95) late Tuesday.