Market Review - 01/11/2011 21:57 All times in GMT

Euro declines as Greek referendum fuels renewed Greek default fears

The single currency fell to a near three week low on Tuesday after Greece's decision to hold a referendum stoked fears of a possible Greek debt default. Euro pared its losses on news that German Chancellor Angela Merkel and French President Nicolas Sarkozy will hold emergency talks on Greece on Wednesday to implement the package of measures made at EU summit.

Although euro edged marginally higher to 1.3871 in Asian morning, renewed selling emerged and price tumbled to an intra-day low at 1.3609 in NY morning on renewed fears of a Greek default after Greece Prime Minster George Papandreou unexpectedly announced for a referendum on its latest bailout package late on Monday. The single currency was further pressured due to the selloff of European equities.

The single currency pared intra-day steep losses in New York and recovered to 1.3764 after a media report said there was growing opposition from Greek lawmakers on the referendum and France and Germany emphasised that they were determined to implement decisions made at the EU summit. However, euro later retreated to 1.3676 in NY afternoon after a Greek spokesman confirmed there will be a referendum.

A Greek government spokesman said 'Greek Prime Minster told cabinet that he will hold referendum; Greek government believes will win vote of confidence.'

In other news, Eurogroup's President Jean-Claude Juncker said 'if Greeks were to vote "no" in a referendum, cannot exclude Greece going bankrupt; Greek proposal adds "great nervousness and insecurity" to already insecure situation.'

The British pound tracked euro's intra-day movement and fell to an intra-day low at 1.5889 at NY morning before recovering to 1.5996 after the release of a media report hinted at opposition against the Greek referendum. However, the pair retreated to 1.5945 after the confirmation of a Greek referendum.

Versus the yen, although the greenback rose briefly but strongly to a session high at 79.00 in Asian morning, it quickly retreated to an intra-day low at 78.02 and then edged higher to 78.45 in NY morning.

The Reserve Bank of Australia cut its rate to 4.50% from 4.75%. It said 'neutral stance now consistent; fears of a major downturn have not been born out; China's growth has slowed; Inflation now likely to be close to target; overall growth moderate, confidence subdued; significant slowing in European economic activity.' The Australian dollar tumbled from 1.0565 to 1.0272 through the day.

FTSE-100, CAC-40 and DAX tumbled by 2.21%, 5.38% and 5.00% respectively. DJI closed the day at 11657.96, down by 297.05 points or 2.48%.

On the data front, U.K. Q3 GDP Q/Q and Y/Y were both 0.5% vs forecasts of 0.4%. Manufacturing PMI in Oct was lower than expected at 47.4 vs forecast of 50.0, 51.1 in Sept. China's manufacturing PMI dropped to 50.4 vs street forecast of 51.6 (prev. reading was 51.2), its slowest since Feb 2009.

Data to be released on Wednesday:

Australia building approvals, Germany manufacturing PMI, unemployment change, unemployment rate, EU manufacturing PMI, U.K. construction PMI, U.S. ADP employment, Fed rate decision.