Greek debt swap successful

Stocks market gains accelerated Thursday on indications that a deal to restructure Greece's debt would succeed.

The Dow Jones industrial average closed up 71 points at 12,908, and the S&P rose 35 points to 1,366.

The gains came as private investors in Greek bonds reached a 3 p.m. EST deadline for deciding whether to swap US$140 billion in Greek government bonds for new ones worth much less.

Greek government officials told The Associated Press that participation was already above 75 per cent, nearing the 90 per cent rate needed for the swap to be successful.

Athens will release final results Friday morning. If creditors holding more than 75 per cent signed up, that can trigger legislation forcing holdouts to go along.

The market gains came despite a report from the US Labor Department early Thursday that the number of people seeking unemployment benefits rose slightly more than expected last week.

The four-week average, however, remained near a four-year low, and applications are down 14 per cent since October.

The government will issue its February jobs report on Friday, and economists are expecting more than 200,000 net jobs were added.

Stocks rose around the world as optimism about the Greek debt deal took hold. In Europe, the FTSE 100 index of leading British stocks closed up 1.2 per cent. Germany's DAX and the CAC-40 in France both gained 2.5 per cent.

investor confidence

The euro rose against the dollar. In another sign of investor confidence in Europe, the yields on government bonds of both Italy and Spain both fell.

Asian markets also rallied, ending a three-day losing streak. Japan's Nikkei Stock Average climbed two per cent, Hong Kong's Hang Seng jumped 1.3 per cent and China's Shanghai Composite Index rose 1.1 per cent.

The positive view on the Greek deal also helped push oil prices higher, as resolving the crisis is seen as good for the European economy, where demand could rise. Oil closed near US$107 per barrel on the New York Mercantile Exchange. Gold prices also rose.

The yield on the benchmark 10-year US Treasury note rose to 2.01 per cent from 1.98 per cent late Wednesday.

Brian Gendreau, market strategist for Cetera Financial Group, said that even if some of Greece's private investors reject the bond swap deal, the situation in Europe is clearly improving.

"A year and a half ago, the idea that private bondholders would take a hit wasn't even on the table," Gendreau said.

Gendreau's sense is that the market's response to a possible Greek default would not be as harsh as it might have been last year, when there were predictions the euro could collapse. He would expect a reaction that reflects more "fatigue and exasperation. But that's not the same as panic and crisis."

Banks, pension funds and other investors hold well over half the €206 billion (US$270 billion) of total Greek debt in public hands.

€130- billion package

The complex bond swap, known as the Private Sector Involvement, or PSI, is critical for Greece to secure its second bailout - a €130- billion (US$171 billion) package of rescue loans from other Eurozone countries and the International Monetary Fund.

Eurozone leaders and the European Central Bank wanted the Greek bond swap to be entirely voluntary to avoid a CDS payout, which they fear could create a cascade of losses in an already shaky financial system.

However, the International Securities and Derivatives Association, the organisation overseeing CDS, says the actual payouts on CDS's linked to Greek bonds will be less than US$3.2 billion.

The president of the German Banking Association, Andreas Schmitz, said he doesn't expect the bond swap - even if it results in a CDS payout - to cause turmoil.

"The consequences won't hit the market as hard as many thought even a short while ago," Schmitz said Thursday. "I think that the market today will react quite rationally."

- AP