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Stocks rebound but Greek debt in spotlight

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange March 7, 2012.

KIRILL IORDANSKY/KIRILL IORDANSKY/REUTERS

World stock markets cautiously rebounded Wednesday in a week that saw Europe's debt crisis return to centre stage over concerns Greece would not attract enough investor support for a deal meant to head off a messy default.

Investors have also been concerned about global growth, especially in light of the recent rise in oil prices. But Wednesday's modest rally seemed to indicate some are holding out hope that data from the U.S. later in the day will show the world's largest economy continues to generate new jobs.

Analysts warned, however, that the rally in shares could be short-lived since worries over Greece remain – and not just in the short term.

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"It is perfectly possible that the euro zone and Greece could find themselves in three years time in exactly the same spot they were in at the start of this year," said Simon Derrick, an analyst with Bank of New York Mellon. "Whether the political will for such a top-up would be there by 2015 of course remains very much open to question. Little wonder then that the issue of a euro zone exit should remain very much on the agenda."

More imminently, Thursday marks the last day the country's private creditors can sign up to a deal meant to slash €106-billion ($139-billion U.S.) off Athens' books and hopefully put it on the path to recovery.

The creditors will take hefty losses if they agree to swap their bonds, but European leaders have painted the deal as the only way to prevent a messy Greek default that would have widespread repercussions for banks and economies throughout the 17-country euro zone.

Private creditors have been asked to accept to swap their bonds for new ones with a face value that is 53 per cent lower and with longer maturities and lower interest rates. Some creditors, including hedge funds, are thought to be weighing up the benefits of holding out for a potentially bigger insurance return.

If the take-up is below 90 per cent, but still above the crucial 66 per cent threshold for the deal to go ahead, the Greek government could force holdouts to accept the swap. That may be considered a credit event – a technical term for a default – meaning bond insurers would have to pay the Greek bondholders.

Worries over the swap sent stocks tumbling this week, including a more than 200-point drop in the Dow Jones industrial average on Tuesday, that ended a streak of calm.

But, on Wednesday, stocks rose ahead of a private payrolls report from the U.S. that analysts expect to show solid growth.

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In Europe, the French CAC-40 was up 0.8 per cent at 3,390, while Germany's DAX rose 0.5 per cent to 6,664. The FTSE index of leading British shares edged up 0.3 per cent 5,781.

The euro also nudged up to $1.3154.

Wall Street was set to open a bit higher. Dow futures gained 0.4 per cent at 12,798, while S&P futures rose 0.5 per cent to 1,348.

Investors are also worried about oil prices, which are charging up amid unrest in Syria and Libya and tensions between Israel and Iran. Disappointing growth figures from Australia and Brazil and a report showing that the combined economies of euro countries shrank at the end of 2011 have called into question the strength of a nascent global recovery; inflated energy prices could further weigh on any rebound.

Benchmark oil for April delivery was up 82 cents to $105.52 per barrel in electronic trading on the New York Mercantile Exchange.

Earlier Asian markets were lower as they weighed these fears.

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Japan's Nikkei 225 index fell 0.6 per cent to close at 9,576.06, while Hong Kong's Hang Seng slid 0.9 per cent to 20,627.78. South Korea's Kospi lost 0.9 per cent to 1,982.15. Benchmarks in Australia, Taiwan, Singapore and Indonesia also fell.

In mainland China, the benchmark Shanghai Composite Index lost 0.7 per cent to 2,394.79. The Shenzhen Composite Index for China's second, smaller exchange lost 0.5 per cent to 967.05.

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