Asian markets guarded as Athens strives to reach deal

Shares and the euro struggled on Thursday, as sentiment grew cautious after Greek political leaders said talks would continue to resolve one remaining issue standing in the way of a deal on a bailout package, which is crucial to avoiding a debt default.

Discussions would continue so a deal could be concluded before a meeting of euro zone finance ministers on Thursday, the prime minister said in a statement on Thursday.

The statement did not say what the sticking point was, but Greek officials said pensions cuts were the issue. Greek political leaders agreed to cut the minimum wage by 22% but managed to prevent holiday bonuses from being scrapped.

 

Failure to secure the 130 billion euro rescue package could push Greece into a disorderly default and threaten the stability of the entire euro zone.

The euro stood at $1.3250, hovering near an 8-week peak of $1.3289 reached on Wednesday.

MSCI's broadest index of Asia Pacific shares outside Japan edged down 0.2%, after rising to its highest in more than five months the day before.

Japan's Nikkei opened down 0.2%, after hitting a three-month high above 9,000 on Wednesday.

A solution to the long-awaited Greek debt restructuring, after months of wrangling, could spur a rally but profit taking may follow because many markets were nearing key resistance.

"Greek uncertainty has been a major drag, limiting the market's upside. With political leaders finally reaching an agreement, the market is likely to post a relief rally," said Oh Eun-soo, an analyst at Hyundai Securities in Seoul.

Volatility was poised to pick up, suggesting the recent risk-positive sentiment may face a short-term pullback.

The CBOE Volatility index VIX, which measures expected volatility in the S&P 500 over the next 30 days, closed at 18.16, near an upper limit of a technical range between 15.75 and 18.75. A fall towards the lower end would suggest a continuation of the risk rally, analysts say. A rise in the VIX index reflects receding fears of sharp market falls.

Asian credit markets were cautious, with the spreads on the iTraxx Asia ex-Japan investment grade index widening slightly by one basis point early on Thursday.

China CPI, Central Banks

Aside from Greece, the market will focus on China's January inflation data due at 0130 GMT, with the annual rate of 4.1% forecast, steady from December.

Later in the day, the European Central Bank and the Bank of England both hold policy meetings, with the UK central bank expected to add an extra 50 billion pounds of stimulus via bond purchases.

"Today's meeting of the Bank of England's MPC may provide another official boost to market sentiment and global financial liquidity," Barclays Capital said in a note.

The ECB is expected to hold rates steady but may signal it is ready to cut in March.

While recent data from the United States suggested the world's largest economy was on track for moderate recovery, indicators from the euro zone were lacklustre, underscoring the effect the debt crisis was having on the region's growth.

Italy's gross domestic product may have fallen in the fourth quarter of last year, likely more steeply than the 0.2% in the third quarter, while Germany's exports dropped the steepest in nearly three years in December, and France saw no growth in the first quarter of 2012.

Oil remained supported by supply concerns. Brent closed at $117.20 a barrel on Wednesday for a seventh straight gain. US crude added 0.2% from Wednesday's gain to stand at $98.91 early on Thursday.