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Markets wary of euro future

GLOBAL markets were given a shot of confidence this week as Europe took a big step towards solving its financial problems, but business leaders and investors caution the region is not in the the clear yet.

GLOBAL markets were given a shot of confidence this week as Europe took a big step towards solving its financial problems, but business leaders and investors caution the region is not in the the clear yet.

The Australian market soared on Thursday, and markets from London to New York did likewise as they opened for business. However, the enthusiasm petered out in Australian trading yesterday, with stocks closing only marginally higher.

That was also the pattern across European markets last night.

"Obviously the markets have been very focused on Europe in recent times and certainly the way they've responded in the last 24 hours gives you a feeling they're satisfied with what they've seen come out of Europe to date," Macquarie Group chief executive Nicholas Moore said yesterday.

"Given the market was looking for [this solution], it has responded well towards it and we can be hopeful. But of course we're unsure in knowing where we're going to end up."

Despite yesterday's flat performance, the past week has been the best for the ASX in more than two years.

The 5.1 per cent weekly gain is the biggest since July 2009, when the market was climbing back from the depths of the global financial crisis.

Australia's benchmark S&P/ASX 200 Index ended yesterday 5.1 points higher at 4353.3 a gain of just 0.12 per cent.

The dollar surged as much as US4? to an eight-week high, even as expectations spread that the Reserve Bank might cut the cash rate on Tuesday. Last night, the Aussie was trading at $US1.067, after climbing above $US1.07.

European leaders this week announced a plan to shore up their bailout facility, pledging new funds for Greece and persuading banks to agree to major write-downs in an accord reached after two successive summits.

There will be "voluntary" restructuring of Greek government debt equivalent to a haircut for bondholders of 50 per cent, which it is estimated will reduce Greece's general government debt ratio to 120 per cent of gross domestic product.

As part of the plan, euro zone leaders agreed to leverage the ?440 billion ($A584 billion) European Financial Stability Facility to ?1 trillion.

While equities rallied, some bond and credit markets barely reacted to the European plan, suggesting doubts about whether this week's agreement will turn out to be a long-term solution for the region's substantial debt problem.


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