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Thread: Follow the latest news @ Empire Global

  1. #151
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    Post Stocks rise on hopes for bank support steps


    (Reuters) - World stocks rose for a second day Thursday while government bonds fell as expectations grew policymakers would take steps to support European banks, under threat from the impact of a possible Greek default.


    German Chancellor Angela Merkel said Wednesday Berlin was ready to recapitalize its banks if needed, adding to pledges by European finance ministers to safeguard banks in the face of mounting concerns about a Greek default [ID:nL5E7L53W7]

    The Financial Times reported Thursday that the European Banking Authority, mid-way through a two-day crisis meeting to assess the potential hit of mass sovereign restructurings, is re-examining the strength of the region's banks.

    Investors are focusing on euro zone and UK central bank policy meetings for hints on future monetary easing.

    A majority of analysts predict the European Central Bank will refrain at least until next month from cutting interest rates and the Bank of England from pumping more money into the economy. But there are those in both markets who see a risk of such moves already Thursday and the ECB is expected to take further steps to help banks.

    Hopes for near-term policy measures -- both from politicians and central banks -- are helping investors to take a break from a sell-off triggered by growing concerns about the damage to the banks from any Greek sovereign default.

    "Significant talk of bank recapitalization is certainly the driving factor behind positive sentiment," said Keith Bowman, equity analyst at Hargreaves Lansdown.

    "But there is still a lot of uncertainty. Speed is of the essence and that would make a difference. If we see another week or so go by without some significant step forward, that is likely to inject nerves back into the markets."

    The MSCI world equity index .MIWD00000PUS was up 0.9 percent, having hit a 15-month low earlier this week. The index is around 5.6 percent above this low.

    U.S. stock markets also finished higher Wednesday. VIX index .VIX, Wall Street's fear gauge, fell 7 percent to 37.81 Wednesday, down sharply from this week's peak of 46.88, lending support to investors cautiously putting some risk back on in the near-term.

    European stocks .FTEU3 rose 0.4 percent and emerging stocks .MSCIEF added 2.2 percent.

    U.S. crude oil gained a quarter percent to $79.91 a barrel.

    Bund futures fell slightly on the day.

    Spain will sell up to 4.5 billion euros of bonds, with comments from the IMF that it may buy peripheral bonds seen helping, although the fund later stepped back from a firm pledge to do this.

    The dollar .DXY against a basket of major currencies

    The euro fell 0.2 percent to $1.3324.

    "Inflation fears may not allow the ECB to cut rates, but we're bound to see some form of support for Europe's banking system -- and that should help the euro rise," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust and Banking in Tokyo.

  2. #152
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    Post Euro steady, market holds breath before ECB

    (Reuters) - The euro held steady against the dollar on Thursday as uncertainty gripped markets before an ECB meeting that could see rates cut or the rebirth of long-term lending to banks, while Europe's efforts to resolve its debt crisis and solid U.S. data provided tentative support for riskier assets.

    The euro, last at $1.3331, maintained most of its overnight gains made after Germany said it would help its own banks if necessary and opened the possibility of using a regional bailout fund to strengthen the euro zone banking system.

    Investor focus now shifts squarely to the European Central Bank's monetary policy meeting, whose outcome -- due at 7:45 a.m. EDT -- seems increasingly uncertain.

    The ECB has been widely expected to keep rates unchanged at 1.5 percent, but calls for a cut have grown louder amid signs the euro zone economy is deteriorating further and as Greek default fears weigh heavily on confidence in the bloc's banks.

    "Inflation fears may not allow the ECB to cut rates, but we're bound to see some form of support for Europe's banking system -- and that should help the euro rise," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust and Banking.

    Kitakura cited measures such as more liquidity, bringing back the ECB's 12-month tender last used at the end of 2009, and, possibly, the resurrection of its program for buying covered bonds.

    In a Reuters survey taken last week, 56 out of 75 economists said they expected the ECB to hold rates this time around, though 13 saw a 25 basis-point cut and 7 predicted a 50 basis-point cut.

    JP Morgan Chase is forecasting a drastic 50 basis point cut by the ECB saying the bank's move to "balanced" inflation risk at the last meeting came sooner than expected especially since the "inflation hump" is far from over.

    "Because the market remains split in its views on what the ECB should do, it's hard to say to what extent any move is already priced in the euro," said a trader for a Japanese bank.

    He added that if there is no cut, but additional measures like more liquidity are implemented, the euro could jump to take out stop losses looming between $1.3400 and $1.3450.

    A decisive break above that level could pave the way for a correction toward $1.3680 -- the 38.2 percent retracement of the $1.4550-$1.3145 slide.

    The single currency has lost about 10 percent against the dollar since that late August peak at $1.4550, but stands well-off a nine-month trough of $1.3145 struck this week.

    WAITING FOR SOLUTION

    European finance ministers agreed to safeguard banks, many of which could face heavy losses if a planned second bailout package for Greece does not go ahead, after France and Belgium agreed to bail out the debt crisis' first banking casualty, Dexia.

    The countries are expecting to finalize the rescue of the troubled lender, but disagreements remain over details of the plan as the two countries try to defend their respective national interests.

    "The crisis is far from over and I'm still negative on the euro looking beyond the ECB," said Minori Uchida, senior analyst at the Bank of Tokyo-Mitsubishi UFJ, adding that the currency may eventually drift below $1.30 in the coming days.

    The Netherlands votes on widening the role of the EFSF euro zone bailout fund, as agreed in July, after Malta delayed its ratification of the facility, while Slovakia -- the last country to vote on the issue next week -- is bitterly divided over it.

    "They are voting over it, but these measures are already seen as not satisfactory and the wholistic structural solution is still far away," said Uchida.

    The British pound shed 0.3 percent to $1.5425 as the Bank of England was due to meet on Thursday amid talk it may open the way for more quantitative easing.

    The single currency hovered around 1.2318 Swiss francs, having hit its highest since May on Wednesday.

    With markets highly concerned about the threat of a systemic shock in Europe, they barely took notice of another round of better-than-expected U.S. data showing the economy is still growing, albeit slowly.

    The recent flow of data suggests fears of recession in the U.S. and a hard landing in China are possibly overdone. A good number from Friday's U.S. non-farm payrolls could set the stage for a rally in risk assets.

    The dollar index came off a nine-month high of 79.838 earlier in the week to last trade at 79.028. It was steady against the yen at 76.74, off a three-week peak of 77.26 struck on Monday.

  3. #153
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    Post Euro rises on Barroso comments, ECB could support


    Barroso comments on recapitalising banks push euro to session high

    * Rates seen on hold, liquidity measures likely from ECB

    * Euro spikes versus Swiss franc, traders cite media report




    LONDON, Oct 6 (Reuters) - The euro climbed versus the dollar on Thursday after a top euro zone official said policymakers are proposing coordinated action to recapitalise banks, raising expectations the region's banking sector would be ringfenced from the Greek debt crisis.

    The euro was last up 0.3 percent on the day versus the dollar, near a session high of $1.3397. It jumped sharply following European Commission President Jose Manuel Barroso comments, and stops were cited above $1.3420.

    Investors were also focused on the European Central Bank meeting where policymakers are expected to provide longer-term funding to banks and keep interest rates on hold.

    But there was some speculation of a rate cut and that uncertainty meant some investors were more likely to go into the announcement at 1145 GMT with positions squared.

    Some market players were reluctant to initiate fresh positions ahead of ECB President Jean-Claude Trichet's last policy meeting. He could pave the way for a cut before year-end, even if rates are kept on hold at 1.5 percent today.

    "We expect there will be no rate cut today which should be some kind of support for the euro as long as the market does not come to the conclusion the ECB is behind the curve and not taking action quickly enough," said Lutz Karpowitz, currency analyst at Commerzbank.

    Calls for a cut have grown louder amid signs the euro zone economy is deteriorating further and as Greek default fears weigh heavily on confidence in the bloc's banks.

    In a Reuters survey taken last week, 56 out of 75 economists said they expected the ECB to hold rates this time around, though 13 saw a 25 basis-point cut and 7 predicted a 50 basis-point cut.

    Analysts said other measures to support Europe's banking system could include more liquidity, bringing back the ECB's 12-month tender last used at the end of 2009, and possibly the resurrection of its programme for buying covered bonds.

    A trader at a Japanese bank said if there was no cut, but additional measures like more liquidity are flagged, the euro could rise, taking out stop losses between $1.3400 and $1.3450.

    A decisive break above that level could pave the way for a correction towards $1.3680 -- the 38.2 percent retracement of the late August to early October slide from $1.4550 to $1.3145, a nine-month trough struck this week.

    WAITING FOR SOLUTION

    Optimism that Germany was taking steps to safeguard the financial sector and improved U.S. economic data provided some support for the single currency after a volatile week in which the French and Belgian governments pledged to rescue troubled bank Dexia .

    European finance ministers have agreed to safeguard banks, which could face heavy losses if a planned second bailout package for Greece does not go ahead, but analysts said event risk for the euro remained high.

    "The crisis is far from over and I'm still negative on the euro looking beyond the ECB," said Minori Uchida, senior analyst at the Bank of Tokyo-Mitsubishi UFJ, adding that the currency may eventually drift below $1.30 in the coming days.

    The single currency jumped to a four-month high of 1.2430 Swiss francs . Traders cited media reports quoting a senior Swiss official as saying a higher exchange rate floor in euro/Swiss would be better for the economy.

    Sterling fell 0.2 percent versus the dollar to $1.5438 ahead of a Bank of England rate decision, also on Thursday, amid talk policymakers may open the way for more quantitative easing.

    Once ECB and BoE rate decisions are out, market attention is likely to focus on the U.S. economy. A good number from Friday's U.S. non-farm payrolls could set the stage for a rally in risk assets.

    The dollar index came off a nine-month high of 79.838 earlier in the week to last trade at 79.055. The greenback was steady against the yen at 76.71 , off a three-week peak of 77.26 struck on Monday.

  4. #154
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    Post World stocks keep firm tone after BoE, eyes on Trichet

    (Reuters) - World stocks kept a firmer tone on Thursday after the Bank of England surprised the market by launching a fresh round of monetary easing this month, before cutting gains as the European Central Bank left interest rates on hold.

    The euro hit the day's low and German government bonds rose after the ECB held interest rates at 1.5 percent, disappointing some who had expected a cut in borrowing costs this month.

    Such expectations grew after the Bank of England pledged to buy a bigger-than-expected 75 billion pounds in assets to bolster the UK economy -- a move that pushed sterling to a 14-month low against the dollar.

    Investors are now focusing on ECB President Jean-Claude Trichet's news conference at 1230 GMT -- his last, and at which he is expected to announce a set of fresh liquidity measures to help banks.

    Growing hopes that policymakers would take coordinated steps to support European banks, under threat from the impact of a possible Greek debt default, kept the underlying tone positive for risky assets.

    European Commission President Jose Manuel Barroso proposed a coordinated recapitalization of banks to restore confidence, while the European Banking Authority said it was examining the resilience of lenders' capital positions.

    Optimism over near-term policy measures -- both from politicians and central banks -- are helping investors to take a break from a sell-off triggered by growing concerns about the damage to the banks from any Greek sovereign default.

    "It's a good injection of capital. We now just need to see a coordinated effort from the rest of Europe to sort out the recapitalization of European banks and it should form a decent base to move forward," said IG Index sales trader Yusuf Heusen.

    "It takes away quite lot of risk. This is positive for the market."

    The MSCI world equity index .MIWD00000PUS rose 1 percent, off the day's highs, having hit a 15-month low earlier this week. The index is now around 6 percent above that point.

    U.S. stock futures were up 0.1 percent, pointing to a slightly higher open on Wall Street.

    European stocks .FTEU3 rose 1 percent and emerging stocks .MSCIEF added 2.6 percent.

    The dollar .DXY rose 0.3 percent against a basket of major currencies. The euro fell 0.5 percent to $1.3264.

    "The ECB is now likely to prepare an interest rate cut within the next four months, by March at the latest," said Berenberg Bank economist Holger Schmieding.

    Sterling hit a 14-month low of $1.5270 after the BoE announcement.

    Bund futures erased earlier losses to rise 17 ticks on the day.

    The cost of insuring peripheral euro zone debt against default fell earlier. Five-year credit default swaps on Italian government debt fell 18 basis points to 450 bps, according to data monitor Markit.

    Equivalent CDS prices fell for Spain, Portugal and Belgium.

    U.S. crude oil gained 0.7 percent to $80.28 a barrel.

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    Post Wall Street extends rally after payrolls data

    (Reuters) - Stocks opened higher, rising for a fourth day on Friday after stronger-than-expected payrolls data suggested the economy may avoid another recession.

    The Dow Jones industrial average .DJI gained 80.19 points, or 0.72 percent, to 11,203.52. The S&P 500 .SPX rose 4.50 points, or 0.39 percent, to 1,169.47. The Nasdaq Composite .IXIC added 0.71 points, or 0.03 percent, to 2,507.53.

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    Post Exclusive: Gold to stay strong, top performing funds say

    (Reuters) - Gold will stay strong due to a lack of alternative havens for investors operating in a slowing global economy, top performing commodity fund managers told Reuters after taking a defensive approach and going into cash during September's gold sell off.

    "We consider the current weakness in gold as temporary and also the slump in commodity prices should come to an end soon," said Kurt Hug, an investment adviser for the Antares Precious Metals Fund.

    The fund came third in the Lipper Global commodity sector rankings in the third quarter of 2011 by keeping a high percentage of "strategic liquidity" in Swiss francs in anticipation of "a severe, but short-lived commodity shock."

    Fund research and analysis organization Lipper, a Thomson Reuters company, covers more than 108,000 funds. The commodity segment covers funds investing in both commodities futures and natural resources-related equities.

    Reuters approached the best performers to ask for details of their winning strategies.

    Also staying defensive was Paula Bujia, manager of the $330 million Schroders Gold and Precious Metals Fund, which came fourth. Steering clear of precious metals other than gold, and investing in mid-cap gold miners rather than seniors and juniors, helped her outperform, she said.

    The gold price has risen by nearly 17 percent so far this year, having hit a record $1,920.20 an ounce in early September before correcting sharply downwards. It was around $1,655 an ounce on Friday.

    Bujia said gold's correction from its peak was still only half of its declines in 2008 and she would wait for more selling of gold, particularly in exchange traded funds (ETF), before she felt able to resume aggressive buying of other precious metals and of mining equities.

    "In this environment, it's very difficult to believe that other precious metals could do well," she said. "Until we see more capitulation in gold and more ETF outflows it is not the right time to turn aggressive."

    Bujia is sticking with her gold tilt, saying the recent correction has been meaningful, but gold is not yet at a capitulation point. She believes gold may trade sideways for another couple of months, or come off another 10 percent.

    Precious metals funds dominated the upper end of the Lipper league table of over 130 funds in the third quarter.

    The LGT Dynamic Gold Fund came first, returning 9.36 percent over a quarter which saw the commodity index S&P GSCI fall 11.69 percent.

    Peter Sigg, head of investment management for commodities at LGT Capital Management, said the $73 million fund had been invested between 96 percent and 115 percent over the quarter.

    "We have been slightly leveraged during the move to (gold at) $1,900 (an ounce) and we were slightly invested in cash during the sell-off in September," he said.

    TESTING QUARTER

    Reuters' analysis of the Lipper data showed that the third quarter was testing for all commodity managers, with the average actively-managed fund in the Lipper Global commodity sector down 8.34 percent.

    S&P said equity market weakness and U.S. dollar strength had culminated in the worst quarter for the S&P GSCI since the fourth quarter of 2008.

    Energy prices came under pressure due to fears of slowing demand and even precious metals did not escape, with profit-taking overwhelming the market in September. The S&P Precious Metals index ended September down more than 14 percent.

    "Our conclusion of the last month is that gold is not immune in a very negative global commodity and equity market environment, which was similar to the autumn 2008 experience," said LGT's Sigg.

    But, like Bujia and Hug, he remains relatively bullish on gold, saying that whilst the recent sell off had washed out the CFTC net long positions held by professional investors, individual investors had only marginally reduced their physically-backed gold ETF holdings.

    Bujia also noted that an equity exposure of just 20-25 percent may have protected her from stock market losses, helping her outperform those with higher equity tilts.

    There is still a big gap between the performance of gold futures and gold mining stocks, which she said is partly because the miners are unable to decouple from overall equity markets.

    "When you have a fear trade, gold can perform well but not the equities," she said.

    She believes gold equities offer great value, with record earnings and cash levels and increasing dividends, but these fundamentals will not come good until the stock market calms down.

    Bujia remains cautious, focusing on mid-caps such as Randgold Resources, Yamana Gold and Eldorado which she said have good production growth.

    Among the more diversified funds, Neuberger Berman's $100 million Enhanced Commodities fund, managed by Gresham Investment Management, also acquitted itself well largely due to a fairly high exposure to precious metals.

    Douglas Hepworth, director of research at Gresham, added that a tilt to crude oil over natural gas, and to meats over grains and softs, had helped.

    "Macroeconomic factors have been the drivers of the entire commodities asset class for several months, and nothing there looks particularly encouraging," he said.

    The worst-placed funds were the BI Basic Long Commodity Fund, which invests in natural resource equities and futures and cannot go short, and the BBGI Commodities fund which invests in a mix of commodity ETFs and commodity equities.

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    Post Fitch cuts Italy, Spain ratings; outlook negative

    (Reuters) - Fitch Ratings on Friday cut Italy's sovereign credit rating by one notch and Spain's by two, citing a worsening of the euro zone debt crisis and a risk of fiscal slippage in both countries.

    The cuts underline the growing vulnerability of the euro zone, which is already struggling to contain the turmoil in the far smaller Greek economy and which would be overwhelmed by a crisis of a similar scale in Italy.

    Fitch cut Italy's rating to A+ from AA- and lowered Spain to AA- from AA+.

    It kept both countries, respectively the third and fourth largest in the euro zone, on a negative outlook suggesting further downgrades could come in future.

    Italy and Spain are embroiled in the region's debt crisis and are reliant on the European Central Bank to buy their government bonds to prevent yields rising to unsustainable levels.

    "A credible and comprehensive solution to the (euro zone) crisis is politically and technically complex and will take time to put in place," the ratings agency said in separate statements explaining its downgrades of both countries.

    Fitch's rating for Italy is now at the same level as it rates Malta and Slovakia.

    After remaining on the fringes of the euro zone crisis until the summer, Italian benchmark 10-year bonds now yield around 5.5 percent, having overtaken Spain's yield of around 5 percent in a sign of markets' increasing unease about Italy.

    ECB HELP

    Both yields would be higher but for the ECB, which was cited by traders as supporting both countries' bonds in the market again on Friday.

    Fitch, the third ratings agency to downgrade Italy in recent weeks following similar moves by Standard & Poor's and Moody's, said market confidence in Italy had been eroded by the government's initially hesitant response to the rise in yields.

    The euro fell against the dollar and the yen following the downgrades and U.S. shares fell, but analysts said the move on Italy was largely discounted.

    "Fitch's motivations do not differ much from what the other two agencies said. I don't foresee big moves in the markets as a reaction," said BNP Paribas strategist Alessandro Tentori.

    ING analyst Paolo Pizzoli said the downgrade should be seen as further pressure on the government to adopt growth enhancing structural reforms which were lacking from a recently approved austerity plan aimed at balancing the budget in 2013.

    "There has been a chorus of appeals from the ECB, the EU and the IMF. They have all asked for structural reforms for growth and this (Fitch) is another element in that direction."

    Silvio Berlusconi's scandal hit government plans to present a package of measures to help growth later this month but his coalition is so weak and divided that few analysts have any confidence in its ability to adopt the deep reforms required.

    Spain's Socialist government has slashed its budget deficit with a series of austerity reforms, although much of the country's debt lies in its autonomous regions which are still implementing cuts.

    "LIKE A HERD"

    "We respect the decision but we don't agree with it," said a spokesman at Spain's economy ministry.

    Italian officials sought to make light of the downgrade. Foreign Minister Franco Frattini said it was fully expected and added dismissively that "markets don't care much about the role of Fitch, Moody's and company."

    Fabrizio Saccomanni, deputy governor of the Bank of Italy, said ratings agencies "move like a herd, they all go in the same direction and at the same time." Fitch's move "doesn't change the picture," he added.

    Berlusconi flew to Russia on Friday to celebrate Prime Minister Vladimir Putin's birthday, but a statement from his office said Fitch's comments were more positive than the other agencies', and Italy's fiscal efforts were widely appreciated.

    Fitch said both Spain and Italy were solvent but pointed to their weakening economic growth prospects and urged Italy, one of the world's most sluggish economies for over a decade, to make "a more radical and sustained economic reform effort."

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    Post Merkel, Sarkozy promise new crisis package, offer no details


    (Reuters) - The leaders of Germany and France promised Sunday to unveil a new comprehensive package for solving the euro zone's debt crisis by the end of the month, but offered no details and papered over differences on how to shore up European banks.

    German Chancellor Angela Merkel and French President Nicolas Sarkozy said after talks in Berlin their goal was to come up with a sustainable answer for Greece's woes, agree how to recapitalize banks and present a plan for accelerating economic coordination in the euro zone by a G20 summit in Cannes on November 3-4.

    "We are very conscious that France and Germany have a particular responsibility for stabilizing the euro," Sarkozy told a joint news conference.

    "We need to deliver a response that is sustainable and comprehensive. We have decided to provide this response by the end of the month because Europe must solve its problems by the G20 summit in Cannes."

    Sarkozy will host the Cannes summit and is keen to deliver a big success that might bolster his flagging chances of winning re-election in a presidential vote next year.

    But even if the two leaders can agree on a way forward, the experience of the past two years has shown that they could struggle to get the other 15 countries in the euro zone on board in a timely fashion.

    Pressed by reporters, both leaders refused repeatedly to discuss details of their plan. Sarkozy said he and Merkel were in "total agreement" on the recapitalization of European banks, even though officials in Paris and Berlin have made clear in recent days that the countries are far apart.

    The two euro zone heavyweights have come under pressure worldwide to resolve a crisis which is roiling markets.

    U.S. President Barack Obama Thursday urged Europe to "act fast," calling the common currency bloc's crisis the largest obstacle to a recovery in the United States. World Bank President Robert Zoellick told German magazine Wirtschaftswoche magazine that there was a "total lack" of vision in Europe and Germany in particular needed to show more leadership.

    Following the news conference, the leaders of the euro zone's two biggest economies were due to hold a working dinner at the Chancellery.

    BANK IMPLOSION

    The implosion of Belgian lender Dexia, the first bank to fall victim to the two-year-old euro zone debt crisis, has added a sense of urgency to the talks.

    The prime ministers of France and Belgium and the finance minister of Luxembourg agreed a rescue plan for Dexia Sunday ahead of the meeting in Berlin. [ID:nL5E7L903A]

    Other French banks have come under intense pressure because of their exposure to Greece and other weak countries on Europe's southern periphery.

    BNP Paribas and Societe Generale denied a report Sunday that they could seek to raise a combined 11 billion euros as part of a broader European recapitalization plan.

    Ireland estimated at the weekend that European banks may need more than 100 billion euros ($135 billion) to withstand the debt crisis. The International Monetary Fund (IMF) has said they need double that figure.

    Paris wants to tap the euro zone's 440-billion-euro European Financial Stability Facility (EFSF) to shore up its banks, worried that pouring its own money into them could compromise its coveted triple-A credit rating.

    Officials in Berlin have made clear that they believe the fund should be used only as a last resort, when euro zone member states don't have the means to support their banks on their own.

    Another area of contention is how to use a new, enhanced EFSF to buy sovereign debt -- an issue that would become particularly crucial if Greece failed to secure its next tranche of aid.

    Greece is expected to run out of cash as soon as mid-November. Inspectors from the European Commission, the IMF and the European Central Bank -- the so-called "troika" -- are currently assessing whether Athens has fulfilled the criteria for more aid.

    "We are working closely with the troika which is currently in Greece and we expect them to present a sustainable solution for Greece that keeps it in the euro zone and also ensures the financial stability of the euro zone," Merkel said.

    European Commission head Jose Manuel Barroso told German newspaper Bild at the weekend that a Greek default would have unforeseeable consequences and may cause the crisis to spread.

    "This is new territory for us and we are discussing solutions which have not really been tested before," he said.

    Merkel said France and Germany were working on steps to boost economic coordination in the euro zone and said their proposals would necessitate changes to the bloc's Lisbon Treaty.

    Sarkozy made clear, however, that Europe needed to "take decisions now," rather than announce new long-term plans that would take time to implement. Changing the treaty could take several years.

    "Comprehensive, sustainable and rapid responses before the end of the month. That is the result of this Franco-German meeting," he said.

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    Post Euro edges up on EU pledge, markets cautious


    * Euro up 1/4 cent on Germany, France pledge to recap banks

    * Thin trading expected due to Japan holiday

    * Key China data due this week




    SYDNEY, Oct 10 (Reuters) - The euro inched up in Asia on Monday after leaders of Germany and France promised a new comprehensive plan to recapitalise euro zone banks by the end of the month, though markets remain wary as they have been disappointed many times before.

    The euro eked out a gain of around a quarter of a cent to $1.3390 , from $1.3375 on Friday when it had come under pressure following ratings downgrades of Italy and Spain.

    Hourly resistance is found at $1.3423 and a break above should ease the downward pressure, according to a trader. Against the yen, the euro eased to 102.84 yen , off a one-week peak of 103.85 on Friday.

    The meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy offered no details, but drew a pledge to do what is necessary to shore up banks, settle the Greek crisis and help growth in Europe, giving a gentle boost to risk sentiment. .

    Markets, however, are cautious as EU leaders have promised to resolve the debt crisis before and that could keep the common currency within Friday's range of $1.3360-$1.3525. Trading is expected to be thin with Japan off while the U.S. celebrates Columbus Day.

    France, Belgium and Luxembourg agreed a rescue plan for Dexia, while other French banks have come under intense pressure because of their exposure to Greece and other weak European countries. BNP Paribas and Societe Generale denied they would seek to raise a combined 11 billion euros as part of a broader European recapitalisation plan.

    Adding to pain, the next aid tranche for Greece is far from being a done deal with the IMF indicating the nation is at a crossroads and will need to implement "much stricter structural reforms" than seen so far.

    Athens could run out of cash as soon as mid-November without the new 8 billion euro aid installment, increasing the risk of a default that would drag the region deeper into a debt crisis already shaking financial markets worldwide.

    The dollar index was steady at 78.718, having fallen to a 9-day trough of 78.061 on Friday, despite better-than-expected U.S. payrolls. The dollar, at 76.71 against the yen, remained stuck in the 77.29-76.09 range of the past month.

    This week's focus will be on key China data with trade and CPI due Thursday and Friday. Strong trade numbers and a lower CPI would be the best combination to ease concerns of a hard landing and boost risk sentiment.

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    Post Euro rises after Germany, France promise crisis plan

    (Reuters) - The euro jumped to its highest in over a week against the yen and the dollar on Monday after Germany and France pledged to deliver a plan soon to protect banks and the euro region from its sovereign debt crisis.

    The single currency was on track for its best daily rise against the greenback since July 2010, helped by buying to exit short positions and on unexpectedly strong industrial output data from France and Italy.

    After their weekend meeting, German Chancellor Angela Merkel and French President Nicolas Sarkozy promised to present a plan before a G20 summit in early November to shore up euro zone banks, settle the Greek debt crisis and help growth in Europe.

    "Certainly Merkel and Sarkozy pledging a plan to support European banks by November helped. So we're seeing risk coming back on and that's helping the euro and this rally could go on given the extent of short positioning in the market," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

    The euro climbed 2 percent to $1.3648, above a nine-month low of $1.3145 set last week on trading platform EBS, as investors closed out their short positions initiated earlier.

    It was also up 2 percent on the day versus the yen after touching 100.74 yen a week ago, which was the lowest since May 2001, according to Reuters data.

    Investors had piled into the U.S. and Japanese currencies in a safe-haven move on fears over the euro zone debt crisis.

    The euro's rebound could fade if no comprehensive plan emerges in coming weeks, with the risk of renewed bickering between euro zone policymakers seen as a threat to a decision.

    "But at the end of the day Greece still has problems," Chandler said.

    Officials of the European Union, International Monetary Fund and the European Central Bank met with Greece's finance minister on Monday to complete talks on 8 billion euros worth of aid so Athens could avert a default in November.

    Stronger-than-expected French and Italian output in August reduced fears of sharp economic pullbacks in euro zone's second- and third-biggest economies. That helped propel the euro higher on the day.

    Trading volume was muted due to holidays in Canada and United States.

    SLOVAKIA VOTE

    The pledge from Merkel and Sarkozy, albeit short on details, boosted the euro and other currencies perceived as risky.

    Improved sentiment led to a selling of the U.S. dollar against the Swiss franc and the Canadian and Australian dollars.

    Traders will now focus on voting in Slovakia and Malta to ratify changes to the European Financial Stability Facility, a 440 billion euro bailout fund. They are the remaining euro zone countries still to approve the changes. Any delay on passing the legislation could affect sentiment toward the euro.

    Adding to traders' concerns for the euro, the next aid tranche for Greece is far from a done deal. The IMF said Greece is at a crossroads and would need to implement "much stricter structural reforms" than seen so far.

    "Short positions against the euro have been stopped out, which is why the euro has bounced," said Adam Myers, senior currency strategist at Credit Agricole.

    The euro slipped against the Swiss franc after touching a 4-1/2 month high at 1.24358 francs on EBS. It had risen on lingering speculation Swiss authorities could raise the floor on euro/Swiss franc from 1.20 francs currently.

    The dollar was little changed against the yen at 76.65 yen while it fell 2.6 percent against the Swiss franc at 0.9028 francs.

    The dollar index declined 1.6 percent against a basket of currencies at 77.47.

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