ATHENS/BRUSSELS (Reuters) ? Prospects for a deal on a second international bailout for Greece brightened on Wednesday when euro zone finance ministers were summoned to talks in Brussels while Greek political leaders met to approve a tough new reform and austerity program.

Eurogroup chairman Jean-Claude Juncker invited ministers from the 17-nation single currency area to meet on Thursday evening and the International Monetary Fund said managing director Christine Lagarde would also attend.

They are expected to examine a complex package involving a 130 billion euro EU/IMF rescue and a bond swap with private creditors, which hinges on Athens accepting conditions that require big cuts in many Greeks’ living standards.

Greeks face a dreadful year of recession, a government source said. Athens now forecast the economy will shrink between four and five percent in 2012, the source said, adding to a relentless dive in economic output for the last four years which has sent unemployment soaring.

The figure, contained in a draft letter to Lagarde, is far worse than the 2.8 percent fall in gross domestic product forecast when the 2012 budget went to parliament in November, highlighting the conundrum that more austerity will damage the economy further and drive Greece’s massive debts yet higher.

Juncker called the Eurogroup meeting even though leaders of the three Greek coalition parties were still discussing with Prime Minister Lucas Papademos the terms of a rescue package to avoid a chaotic default in March that would send tremors around the euro zone and possibly further afield.

Two sources close to the Athens talks said the government would promise spending cuts and tax rises totaling 13 billion euros from 2012 to 2015, almost double the seven billion it originally pledged.

The bailout package also pledges a 22 percent cut to the minimum wage level, a party official said.

RELUCTANT LEADERS

International lenders are demanding that the leaders of the conservative New Democracy party, PASOK socialists and far-right LAOS commit themselves in writing to implement the program of pay and pension cuts, structural and administrative reforms.

Euro zone officials say the full package must be agreed with Greece and approved by the euro zone, European Central Bank and IMF before February 15 so that complex legal paperwork can be completed in time for a bond redemption deadline on March 20.

However, the leaders have been loath to accept the lenders’ tough conditions, which are certain to be unpopular with voters,

as they face parliamentary elections possibly as early as April.

After a series of delays, the leaders finally received a 15-page document on Wednesday morning laying out the principles of the bailout and its conditions, a party official told Reuters. Attached were a further 30 or so pages laying out how the program will be implemented.

The leaders will have to decide whether to push through a 15 percent cut to supplementary pensions or a combination of cuts in main and supplementary pensions, the official said.

Other elements of the deal have been gradually slotting into place, including a bond swap with private creditors to ease Greece’s debt burden by reducing the value of government bonds held by banks and insurers.

The new bonds would have an average interest rate of around 3.5 percent, said state NET TV, with creditors having to swallow a 70 percent cut in the value of their debt holdings.

Private holders of Greek debt will discuss the debt swap plan aimed at slashing the country’s debt pile in Paris on Thursday, a banking official told Reuters.

German Deputy Finance Minister Thomas Steffen said in Berlin the bond swap offer to private creditors could be made as early as next week.

He voiced exasperation at Greece’s failure to implement economic and fiscal reforms since the debt crisis erupted two years ago, saying governance remained below European standards.

“I believe we can say today that we have made little progress on Greece since 2010, worryingly little progress,” Steffen said.

ECB NEEDED

Ratings agency Standard & Poor’s said Greece would likely fail to achieve sustainable debt levels if it relied on a 70 percent reduction in the value of bonds held by private creditors, putting the onus on the ECB to also take losses.

“The reduction … is probably not sufficient to make the debt sustainable, given the outlook for GDP itself,” S&P analyst Frank Gill said.

With banks and insurers having mostly agreed to take a hefty writedown, Athens and the commercial banks are urging the ECB to forego profits on its Greek bond holdings to help cut the debt to a sustainable level. That could raise 12 billion euros or more.

But ECB policymakers are still divided on what contribution the bank could make to a restructuring of Greek debt, two euro zone monetary policy sources said.

While the ECB has ruled out joining private creditors in voluntarily accepting losses on its Greek bonds, it could provide indirect relief by renouncing profits from bonds it bought at below face value.

The ECB’s 23-member Governing Council, which holds a regular monthly meeting on Thursday, has yet to agree a position. Some policymakers are reluctant to share the burden for fear of easing pressure on Athens to agree spending cuts. There are also concerns about setting a precedent for other countries.

“There is no agreement yet. Some people on the Council still oppose this,” said one monetary policy source, adding that ECB President Mario Draghi had not yet revealed his position.

An opinion poll on Wednesday showed that PASOK, which ruled Greece until Papandreou’s government collapsed last November, has most to fear from elections. The monthly survey by Public Issue for Kathimerini newspaper showed support for PASOK had collapsed to eight percent from the nearly 44 percent it commanded when it returned to power in 2009.

(Additional reporting by Ingrid Melander, George Georgiopoulos and Harry Papachristou in Athens and Paul Carrel in Frankfurt; Writing by David Stamp and Deepa Babington,; editing by Mike Peacock)

Source: http://us.rd.yahoo.com/dailynews/rss/eurobiz/*http%3A//news.yahoo.com/s/nm/20120208/bs_nm/us_greece

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The Dow rose 83 points to close at 12758, its highest close since May 2011, after the Federal Reserve pledged to keep interest rates near zero for almost three more years.

The stock market bounced to its highest close since last spring Wednesday after the Federal Reserve pledged to keep interest rates near zero for almost three more years.

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Bond yields dropped sharply, then climbed back later in the day when investors began looking more closely into the Fed’s deliberations. The yield on the five-year Treasury note touched an all-time low.

The big moves in both markets came at 12:30 p.m. (1730 GMT), when the Fed’s monetary policy committee said it was unlikely to raise interest rates before late 2014. It had previously promised to keep rates low into the middle of 2013.

The Fed cut rates to near zero in December 2008, during the financial crisis, and has held them there ever since. The announcement was a sign that the Fed expects the economy, which is improving, to need significant help for three more years.

The Dow Jones industrial average was down as much as 95 points in the morning and about 60 points before the Fed announcement. It shot to a gain of 103 points during the afternoon.

The Dow closed up 83.10 points, or 0.7 percent, at 12,758.85. That’s the highest close since May. The Dow peaked for last year in April at 12,810. Before that, it had not been so high since May 2008.

In the bond market, the yield on the 10-year Treasury note was at 2.05 percent an hour before the announcement and quickly fell to 1.92, a significant move. It rose to 1.99 percent two hours later.

The bounce-back happened at about 2 p.m. (1900 GMT), when the Fed released details of how the committee voted. Six of its 17 members had favored an interest rate increase this year or next ? well before late 2014 in either case.

The yield on the five-year Treasury note hit 0.76 percent, an all-time low. Bond yields fall when their prices rise.

The Fed’s extension of low rates signaled that it expects inflation to stay low. Low inflation makes Treasurys more attractive by helping to maintain the value of bond owners’ fixed returns. Rising prices would eat into those returns.

The announcement guaranteed that short-term loans will remain cheap, making it easier for investors to finance longer-term purchases, such as 10- and 30-year Treasurys, said John Canally, investment strategist and economist for LPL Financial.

Monetary decisions by the Fed can change the market’s momentum in the short term but rarely have a longer-term impact, Canally warned.

The market changed directions after 22 of the past 24 Fed policy announcements, he said, yet the change evaporates quickly. The market essentially has an equal chance of rising or falling in the five days after Fed meetings, he said.

“It’s a coin flip, really,” Canally said.

Keeping rates ultra-low for a longer period increases the likelihood that the Fed will engage in more bond-buying programs to help the economy, a policy known as quantitative easing, said Anthony Chan, chief economist with JPMorgan Private Wealth Management. Those tend to boost bond prices by increasing the overall demand in the market.

Chan called the Fed’s move insurance against the European debt crisis and a recession across the Atlantic Ocean. Stock buyers, he said, were happy about the prospect of low inflation and a Fed leaning toward promoting economic growth.

The promise of lower rates pushed the dollar lower against other major currencies. Low interest rates make the dollar less attractive because they reduce the returns traders get on U.S. debt and other bonds priced in dollars.

Markets had opened mostly lower on fears about Greece’s slow progress in talks with bondholders aimed at reducing that nation’s crushing debt load.

Technology stocks rose all morning, bucking the wider market, after Apple reported its best quarter and blew away analyst estimates because of strong holiday sales of the iPhone and iPad.

Apple once again passed Exxon Mobil as the company with the biggest market value. Wall Street was watching the results closely because they were for the company’s first quarter since the death of founder Steve Jobs.

Apple stock jumped 6.3 percent, helping lift the Nasdaq composite index by 31.67 points, or 1.1 percent, to close at 2,818.31. The Nasdaq is up 8.2 percent this year, nearly twice the gain for the Dow Jones industrial average.

Netflix Inc., the DVD-by-mail and video streaming provider, jumped 13 percent in after-hours trading after reporting earnings that far exceeded Wall Street’s expectations.

The Standard & Poor’s 500 index rose 11.41 points, or 0.9 percent, to 1,326.06. The S&P is up 5.4 percent for the year and more than 14 percent from its Nov. 25 low.

As fears recede about Europe, big-time investors such as hedge funds will be drawn back into the market, fueling more gains, said Joe Bell, senior Equity Strategist at Schaeffer’s Investment Research.

After such a strong rally, there might be a slight decline, but “overall we’re bullish,” Bell said.

Among the other companies making big moves after announcing earnings:

? US Airways Group Inc. jumped 17.3 percent and Delta Air Lines Inc. rose 6.2 percent. Both airlines reported profits far better than Wall Street analysts expected. The airlines raised fares during the fourth quarter while keeping costs under control. Delta also cut the number of flights it makes to keep pace with demand.

? WellPoint Inc., the largest U.S. health insurance company based on enrollment, fell 4.8 percent. Its quarterly profit dropped 39 percent, far more than analysts had expected. Its full-year forecast also fell short of forecasts. Medical claims, its largest expense, rose nearly 10 percent in the quarter.

? Guidewire Software Inc. soared 37 percent on its first day of trading. The company, which makes software for the insurance industry, rose to $17.80 after selling initially at $13. The 11-year-old company raised $115 million in its debut ? or about $27 million less than the profit Apple turned in an average day last quarter.

Source: http://rss.csmonitor.com/~r/feeds/csm/~3/j3ipt6LDQAQ/Stocks-bounce-on-low-interest-rate-promises

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BERLIN ? Germany’s government cut the country’s 2012 growth forecast Wednesday in the wake of a faltering global economy and Europe’s debt crisis, but said Europe’s largest economy should avoid sinking back into recession.

Following what is believed to have been a contraction in economic activity in the fourth quarter of 2011, Economy Minister Philipp Roesler said the government had reduced Germany’s growth forecast for this year to 0.7 percent from 1 percent ? its second reduction in three months. As recently as October, the prediction had been 1.8 percent.

Germany’s economy, the world’s fourth largest, is thought to have contracted by up to 0.3 percent in last year’s fourth quarter compared with the previous three-month period, though final numbers are not yet in.

Roesler said he expects growth of 0.1 percent in the current quarter, which would mean that Germany avoids slipping into a technical recession, defined as two consecutive quarters of negative growth.

Other forecasters have painted a bleaker picture, however, with many ? such as Commerzbank last week ? predicting that Germany will fall into a modest recession in the first quarter before returning to growth.

Roesler said “a temporary dent in growth can be expected for the coming months” but predicted that “the economy will gradually liven up over the course of 2012.” Growth next year is expected to be 1.6 percent, he said.

Roesler conceded there were risks around the forecasts, not least from financial market turbulence and the debt crisis in the 17-country eurozone.

“Germany remains on the course of growth ? assuming that there is no new sudden crisis on the financial markets, and the uncertainty in the eurozone above all gradually abates,” said Roesler, who is also Germany’s vice chancellor.

Over 2011 as a whole, Germany grew by 3 percent ? following a growth spurt of 3.7 percent in 2010 after its emergence from recession the previous year.

That contrasted with the performance of many of its partners in the eurozone, which have seen their economies barely grow or shrink amid debt troubles and tough austerity measures.

The German government figures come after the World Bank forecast that the eurozone economy as a whole will contract by 0.3 percent this year. It sees the United States growing by 2.2 percent, Japan by 1.9 percent and China by 8.4 percent.

Exports have been the bedrock of Germany’s growth over recent years, but Roesler said this year’s expansion will stem from stronger domestic demand. His ministry forecast that export growth will slow to 2 percent from 8.2 percent last year.

It also expects a further improvement in Germany’s already-bright labor market picture, with the average unemployment rate this year projected to fall from last year’s 7.1 percent ? already a two-decade low ? to 6.8 percent.

Source: http://us.rd.yahoo.com/dailynews/rss/europe/*http%3A//news.yahoo.com/s/ap/20120118/ap_on_bi_ge/eu_germany_economy

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