Markets continued to fall on Thursday as talks to form a Greek government dragged into a fourth day, though Spanish shares recovered strongly after the government confirmed that it will nationalize the country's fourth-largest bank.
The focus of attention in markets remains on Athens after last Sunday's general election left the country in political paralysis. The mandate to form a government will soon pass to Evangelos Venizelos, the leader of the socialist PASOK party and the former finance minister who helped clinch the country's second international bailout and the big writedown on private creditors' bondholdings.
However, Venizelos, whose party was hammered in the elections, is not expected to be able to form a government. Already Antonis Samaras, the leader of the conservative New Democracy party, and Alexis Tsipras, head of the radical left Syriza which came a shock second, have failed to create a government.
"It would be a surprise if he could form a government at this stage so a second election is looming," said Gary Jenkins, managing director of Swordfish Research.
There are some hopes in the markets that in new elections some Greeks who want the country to remain in the euro currency bloc will support the main pro-euro parties, facilitating the creation of a moderate coalition government.
For now, though, the ongoing uncertinaty was weighing hard on stock markets. In Europe, the FTSE 100 index of leading British shares was down 0.5 percent at 5,501 while Germany's DAX fell 0.2 percent at 6,461. The CAC-40 in France was 1.2 percent lower at 3,081.
Spain's IBEX index, however, was trading 1.6 percent higher after a 3 percent fall on Wednesday as investors reacted positively to the government's confirmation that it will nationalize the country's fourth largest lender, Bankia.
The yield on the country's ten-year bond dropped 0.06 of a percentage point. Despite the decline, the country's borrowing rate in the markets for its benchmark bond remains at the perilously high level of 6.01 percent. Bond yields indicate the rate at which the government borrows when it taps financial markets. Rates above 7 percent are seen as unsustainable in the long-run.
The Spanish Economy Ministry said after the market close on Wednesday that it will take over Bankia SA, which has high exposure to bad property loans following a crash in the construction sector. The government hopes its plan for the bank, which will be fleshed out further Friday alongside other measures, will form part of a strategy to convince investors the country won't need a bailout like those taken by Greece, Ireland and Portugal.
"The part-nationalisation of Bankia by the Spanish government seems to be welcomed as at least an attempt to try and draw a line under any further potential for a banking crisis here," said David Jones, chief market strategist at IG Index.
The calmer state of Spanish markets helped shore up the euro, which had fallen to a near four-month low against the dollar on Wednesday. It was flat at $1.2941 on Thursday.
Wall Street was poised for another retreat at the open following six straight days of losses — the Dow Jones industrial average was down 0.3 percent at 12,758 while the broader S&P 500 futures fell 0.1 percent to 1,350.
Earlier, Asian markets fell after the release of Chinese data showing slower than expected exports and imports in April.
The weak import growth raised fears the world's second-biggest economy wasn't doing enough to stimulate domestic demand amid an economic slowdown. The weaker than expected figures for both imports and exports also reinforced concerns over lax global demand for China's exports and slack Chinese demand for commodities needed from other countries to fuel growth.
Japan's Nikkei 225 index dropped 0.4 percent to close at 9,009.65 and South Korea's Kospi lost 0.3 percent to end at 1,944.93. Hong Kong's Hang Seng fell 0.5 percent to 20,227.28.
But mainland Chinese stocks took a smaller hit, with the poor trade numbers also raising hopes that China's leaders would take steps to ease policy measures to boost demand.
The benchmark Shanghai Composite Index was almost unchanged, gaining less than 0.1 percent to 2,410.23 while the Shenzhen Composite Index of China's smaller, second market rose 0.4 percent to 966.66.
Oil prices remained under pressure amid the global economic unease — the benchmark New York rate was down 30 cents at $96.51 cents a barrel.
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