European stocks fall on US growth data

European economic commissioner Olli Rehn on Friday said he expected Greece to agree on a deal with private creditors to write-down its debt this weekend and at the latest in the next few days. Photo / Thinkstock

European stock indices fell back yesterday on concerns over Greece's ability to reduce its massive debt and the release of disappointing US economic growth data.

London's FTSE 100 index of top shares fell 1.07 per cent to close at 5,733.45 points. Frankfurt's DAX 30 index was off by 0.43 per cent to 6,511.98 points and in Paris the CAC 40 gave up 1.32 per cent to 3,318.76.

The Spanish stock index was 0.65 per cent lower, and in Milan shares were off by 1.02 per cent.

The euro climbed meanwhile to US$1.3195 from US$1.3104 late in New York on Thursday, to reach its highest level since December 21.

European economic commissioner Olli Rehn yesterday said he expected Greece to agree on a deal with private creditors to write-down its debt this weekend and at the latest in the next few days.

"We're very close," he told the World Economic Forum in Davos.

"They're about to close a deal, if not today maybe over the weekend, preferably in January rather than February."

As he spoke in Switzerland, the Greek government was in talks with private creditors on a voluntary exchange of bonds that would wipe €100 billion off the country's debt of €350b.

Rehn said Greece would remain a special case and the private lenders would not be required to take losses on any other eurozone country's debt, thanks to plans for a better eurozone financial safety net.

Attention was also on the US economy, which grew by 2.8 per cent in the last quarter of 2011, the Commerce Department estimated, an improvement on the 1.8 per cent growth posted in the third quarter but below an average market forecast for a gain of 3.2 per cent.

Wall Street opened down, with the Dow Jones Industrial Average falling 0.39 per cent in early trading.

The broad-based S&P 500 slipped 0.25 per cent, while the tech-rich Nasdaq Composite dropped 0.02 per cent.

On Thursday, official data had showed that sales of new homes in the United States skidded in December, down 2.2 per cent from November, bringing to a close the worst year on record.

Only 302,000 new houses were sold during the year, the lowest level in records dating to 1963.

New claims for unemployment benefits rose to 377,000, although the four-week average, an indicator of layoffs, continued to head lower.

Asian stock markets mostly rose on tentative hopes Greece would be able to agree a deal with creditors on writing down some of its debt, traders said.

Greek Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos on Thursday resumed talks with banks and insurers on a major writedown to help the troubled country escape a devastating default.

The deal under discussion would see private creditors take a "haircut" of at least 50 per cent on the €200b in debt they hold.

Previous rounds of talks have snagged on the amount of interest to be paid on the remaining debt.