European markets ambivalent over Greek aid plan

The euro rebounded from a 10-month low on Friday but European stocks dropped, as markets gave a cautious welcome to the eurozone's bailout program for Greece, which would extend loans only as a last resort and involve the International Monetary Fund.

Investors' reaction was mixed because while the program does provide a backstop, it rules out any immediate loans to Greece and lays bare the structural problems in Europe's economic union. Furthermore, while the crisis may be averted, several EU countries face years of slow growth as they try to balance their budgets.

The euro was up at $1.3377 in morning trade in Europe compared with $1.3291 in New York late Thursday.

Stocks, however, showed less enthusiasm. Britain's FTSE 100 benchmark stock index was down 0.3 percent at 5,709.90 while Germany's DAX was down 0.4 percent at 6,110.30. France's CAC-40 was 0.3 percent lower at 3,988.84.

"The agreement last night of a rescue package for Greece clearly improves the country's financial outlook and could also ease some of the near-term pressure on the euro," said Jonathan Loynes, chief European economist at Capital Economics in London. "But it would be wrong to think that the crisis is over."

He noted Greece will continue to have to pay a heavy price to borrow money. The spread between Greek 10-year bonds and equivalent German issues - a key indicator of market trust - narrowed to 305 basis points Friday, down from about 330 on Thursday morning. But the level remains high, translating to roughly twice Germany's borrowing rate.

Loynes also pointed out that Greece faces an extremely serious economic crisis, and that it isn't alone - governments in Ireland and Portugal are also inflicting painful austerity programs that will keep growth subdued.

"Against that background, we suspect that any relief for the euro will be short-lived," said Loynes.

The joint eurozone and IMF bailout program comes with strict conditions, making no money available to Greece right now. It could be tapped only if Greece - or other financially troubled eurozone members - cannot raise funds from financial markets and would require the unanimous agreement of the 16 eurozone countries to release the loan funds.

Moody's credit ratings agency highlighted the uncertainty created by the political wrangling to come up with a deal.

"The key credit question is whether, over the coming weeks and months, market confidence will be strengthened by the support package or whether it will be weakened by contentious conditions under which this package was agreed," said Pierre Cailleteau, managing director for sovereign risk at Moody's in London.

In Asia, stocks were mixed in early trade before turning higher later in the day. Japan's benchmark Nikkei 225 stock average gained 167.52 points, or 1.6 percent, to 10,996.37.

Hong Kong's Hang Seng index rose 252.02, or 1.2 percent, to 21,030.57 and South Korea's Kospi added 9.33 points, or 0.6 percent, to 1,697.72. Markets in Australia, Indian and Taiwan also gained.

The dollar fell to 92.50 yen versus 92.66 yen.

The benchmark crude oil contract for May delivery was up 37 cents at $80.90.

Wall Street futures pointed to a stronger open in the U.S. Dow industrial futures were up 0.2 percent at 10,817.00 while Standard & Poor's 500 futures were up 0.3 percent at 1,166.00.

In New York on Thursday, the Dow rose just 0.1 percent, to 10,841.21, after hitting a 2010 high earlier in the day.