Cyprus deal boosts Asian markets
Asian markets rallied on Monday after Cyprus and and its international leaders struck a deal that will qualify the island for a bailout and avoid the collapse of its banking system.
The euro also enjoyed a bump as investors bought on relief that European officials had come to a last-minute agreement they hope will draw a line under a crisis that sent shares tumbling last week.
Tokyo climbed 1.45 per cent, Hong Kong added 0.96 per cent, Sydney was 0.66 per cent higher, Shanghai was up 0.28 per cent and Seoul put on 1.62 per cent.
Final backing for the rescue came about 12 hours into talks between Nicosia, European Union, European Central Bank, International Monetary Fund and euro zone leaders, with Cypriot President Nicos Anastasiades saying he was “content”.
The agreement involves breaking up the island’s second largest lender Laiki (Popular Bank), while deposits above 100,000 euros (HK$1.01 million) in Bank of Cyprus, the island’s main lender, will take a major “haircut”.
“It does appear that the near-term risks have been addressed by the European authorities,” said Matthew Sherwood, head of investment market research at Perpetual in Sydney.
“There was always the hope and expectation, even the knowledge, that Cyprus would have to swallow its medicine and do what the troika told them to do,” he told Dow Jones Newswires.
Leaders had been under pressure to reach a deal after the ECB warned it would cut off funding to the island’s banks if nothing had been done by Monday, which would have led to their collapse and likely forced Cyprus out of the eurozone.
While the new plan will be painful for depositors it is a major change from a proposal last week to hit all savings, including those of the poor, which sent shudders through global markets.
The negotiations were aimed at unlocking a 10-billion-euro loans package that will help Cyprus service its debt obligations and avoid a devastating default.
The news lifted the euro, which was changing hands at US$1.3030 and 123.61 yen in early trade, up from US$1.2986 and 122.72 yen late Friday in New York.
The dollar rose to 94.86 yen from 94.46 yen.
Oil prices rose, with New York’s main contract, light sweet crude for delivery in May adding 35 US cents to US$94.06 a barrel and Brent North Sea crude for May delivery increasing 31 US cents to US$107.97.
Gold was at US$1,610.69 an ounce at 0235 GMT compared with US$1,608.40 late on Friday.