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Asian stocks slip over effects of Cyprus bailout

March 26, 2013

BANGKOK (AP) — Asian stock markets fell Tuesday as relief turned to worry over a bailout that prevents Cyprus from going bankrupt.

The bailout, signed and sealed Monday by European finance ministers, initially alleviated fears of a possible collapse of Cyprus’ banking system. But soon worries arose over the terms of the deal: it requires a banking overhaul and big losses for bondholders and depositors.

Japan’s Nikkei 225 index fell 0.2 percent to 12,516.92. Hong Kong’s Hang Seng lost 0.7 percent to 22,094.44. Australia’s S&P/ASX 200 dropped 0.9 percent to 4,947.60. South Korea’s Kospi rose 0.3 percent to 1,984.19.

Concern intensified late Monday after a key official indicated that the Cyprus rescue may have to be repeated in other nations with struggling banks. Dutch official Jeroen Dijsselbloem said that bondholders and depositors should be prepared to take losses if the banks they put their money in run into trouble.

European markets in financially weaker states, such as Italy and Spain, fell sharply. Italy’s FTSE-MIB closed 2.5 percent down while Spain shed 2.3 percent. On Wall Street, the Dow Jones industrial average fell 0.4 percent to 14,447.75. The S&P 500 closed down 0.3 percent at 1,551.69. The Nasdaq composite index dropped 0.3 percent to 3,235.30.

“Overall, we think that the market will eventually regard the handling of this crisis as a set-back to euro zone credibility,” analysts at Credit Agricole CIB in Hong Kong said in a market commentary.

In return for a 10 billion euros ($13 billion) bailout from international lenders, Cyprus agreed to drastically shrink its banking sector, cut its budget, implement economic reforms and privatize state assets.

Cyprus must contribute 5.8 billion euros to the deal. To do so, the country’s second-largest bank, Laiki, will be restructured and bondholders and depositors with more than 100,000 euros will have to take significant losses.

Depositors in the biggest bank, the Bank of Cyprus, with over 100,000 euros will also bear a cost but those with savings up to 100,000 euros will covered by the EU’s deposit insurance guarantee.

In energy markets, benchmark oil for May delivery fell 7 cents to $94.74 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.10 to finish at $94.81 a barrel on the Nymex on Monday.

In currencies, the euro rose to $1.2867 from $1.2851 late Monday in New York. The dollar rose to 94.25 yen from 94.16 yen.


Follow Pamela Sampson on Twitter at http://twitter.com/pamelasampson.

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