European markets close mostly lower

ATHENS — Greek Prime Minister George Papandreou said Saturday it was "time for Europe to wake up" and find a conclusive solution to his nation's debt crisis, which threatens to undermine the eurozone.

Papandreou, who has frequently expressed impatience at the slow progress of the negotiations, made his latest comments in an interview to appear in Sunday's Kathimerini daily.

Papandreou insisted that Greece would not default on its huge debt and that talks were ongoing for a "long-term" resolution to the crisis.

"We are in the process of reaching a long-term debt breather," he said, referring to efforts between European leaders and foreign ministers to reach a formula that will make Greece's 350-billion-euro ($495-billion) debt viable.

"At this stage, there is no room for voices that cultivate fear and bank on failure," he added.

Just hours earlier, Papandreou joined fellow European socialists in calling for a dedicated agency to stabilise euro debt and limit the power of credit rating agencies.

European Union officials have denounced recent decisions by the leading ratings agencies to downgrade countries struggling with debt amid efforts to recover, arguing that they have become part of the problem.

Eurozone nations will hold an extraordinary summit on July 21 in Brussels to discuss how to tackle the debt crisis and provide fresh aid for Greece.

But EU nations want to move quickly to stop the debt crisis spreading from Greece, Ireland and Portugal to other countries perceived as vulnerable, such as Italy and Spain.

Der Spiegel weekly will on Monday report that Germany's finance minister believes Greece could slice 20 billion euros ($28 billion) of its massive debt burden by buying back its own bonds.

The European Financial Stability Facility (EFSF) could lend the money to Greece so it could buy back bonds from private creditors at market prices, Der Spiegel reported.

In London, the benchmark FTSE 100 index of top shares closed down a fractional 0.06 per cent to 5,843.66 points. In Frankfurt, the DAX edged up 0.07 per cent to 7220.12 points while in Paris the CAC 40 fell 0.66 per cent to 3726.59 points.

Other European markets showed modest losses but Milan shed 1.02 per cent and Madrid was off 1.12 per cent, reflecting the increased concerns over Italy and Spain.

In Paris, Yves Marcais at Global Equities said the debt crisis and the risk of contagion remained the main concerns in Europe.

"This lack of visibility on Europe's future dominates sentiment and makes investors extremely cautious," he said.

"Though undoubtedly attention grabbing, that the tests do not include the scenario of a sovereign default leaves them toothless to a large degree," said analyst Michael Turner at RBC Capital Markets of the EBA findings.

In New York, the market was surprisingly buoyant, supported by strong results from Citigroup and Google which helped offset a sharp fall in consumer confidence and the debt impasse in Washington.

The blue-chip Dow Jones Industrial Average was up 0.13 per cent while the tech-heavy Nasdaq Composite added 0.68 per cent.

Commerzbank analysts said in a note: "The market is currently focussing on the problems in the US. After all, it is easy to resolve the US debt problem - in contrast to the European difficulties."

They said increasing the US government debt ceiling "is a routine step and not necessarily problematic from an economic point of view".

More concerning, a sharp fall in US consumer confidence "casts doubt over our hope of a rebound in consumption growth in the third quarter", noted Paul Dales at Capital Economics.

In the forex markets, the euro was lower at $US1.4116, down from $US1.4141 in New York late on Thursday while the dollar slipped to 79.03 yen from 79.13 yen.

"The (foreign exchange) market is currently focussing on the problems in the United States," said Commerzbank analyst Lutz Karpowitz.

"The (US) dollar is suffering from uncertainty about whether the government will succeed in having the debt ceiling lifted in time."

Washington has reached its $US14.3 trillion ($13.38 trillion) debt ceiling and the White House says it has to be increased by August 2, otherwise it will either have to default on the debt or impose huge cuts in spending that could send the economy into reverse.

Against such an uncertain background, the traditional safehaven investment of gold continued to hold near record levels, closing at $US1587 an ounce, down from $US1590.50 on Wednesday and compared with its record high $US1594.45.

In Asian trade earlier Friday, the markets were mixed after a week of heavy selling. Tokyo gained 0.39 per cent but Sydney fell 0.38 per cent lower and Hong Kong gave up 0.30 per cent.