Markets Remain Cautious As Europe Remains Focus

LONDON (AP) — Stock markets in Europe and the U.S. fell Monday as attention switched back to Europe's often-stumbling efforts to get a handle on its debt crisis.

A warning from Germany's leader that Greece may not get its next batch of bailout cash reinforced concerns that Europe has a long way to go before it can claim to have got the confidence of markets.

The warning from Angela Merkel came after her meeting with French President Nicolas Sarkozy. Their meeting comes a month after all 27 EU countries, but Britain, agreed to thrash out a new treaty by March to enforce tougher budget controls.

Much of the focus in the early part of the year will likely center on Greece and the country's efforts to conclude a restructuring of its debts with private creditors.

Merkel warned that Greece would not get its next desperately needed batch of bailout cash if the restructuring doesn't take place soon. In October, the eurozone agreed upon a second bailout for Greece that involves private creditors forgiving 50 percent of the value of their Greek debt holdings.

Greece, Ireland and Portugal have all been bailed out but the fear in the markets is that much-bigger Italy and Spain may end up needing financial assistance. The yield on Italy's benchmark ten-year bonds on Monday continued to hover around the 7 percent mark, widely considered to be unsustainable in the long run.

On the growth front, the two leaders told reporters that European nations should compare the continent's best labor practices and implement them, as well as figure out how to use European funds to create jobs.

Their focus on the wider economy has come as mounting signs the 17-nation eurozone is heading for a recession have emerged over recent days, including figures Monday showing a bigger than anticipated 0.6 percent decline in German industrial production in November.

One of the main reasons why the early year momentum in markets has run its course is concerns over the European economy. While European economic news has been fairly downbeat, U.S. indicators have proven stronger than anticipated and shored up hopes over the world's largest economy.

"The lack of growth in Europe remains at the forefront of investor concerns," said Michael Hewson, markets analyst at CMC Markets.

On Monday, Germany's DAX was down 0.6 percent at 6,019 while the CAC-40 in France fell 0.3 percent to 3,130. The FTSE 100 index of leading British shares was down 0.4 percent at 5,625.

The euro, which last week took a battering on fears over both the debt crisis and the likelihood that the eurozone is heading toward recession, recovered some ground, trading 0.5 percent higher at $1.2743. Earlier, during Asian trading hours, it had fallen to a 16-month low of $1.2676.

In the U.S., the Dow Jones industrial average was up 0.2 percent at 12,384 while the broader Standard & Poor's 500 index rose 0.2 percent to 1,280.

Earlier in Asia, Chinese shares in Hong Kong and the mainland jumped sharply following a weekend government planning conference during which Premier Wen Jiabao promised to channel lending to entrepreneurs who have been battered by weak global demand.

China tightened lending and investment curbs last year to cool its overheated economy but has reversed course in recent months following a slump in global demand that has hurt exporters and led to job losses.

Hong Kong's Hang Seng index jumped 1.5 percent at 18,865.72. The benchmark Shanghai Composite Index gained 2.9 percent to 2,225.89, while the Shenzhen Composite Index gained 3.7 percent. Elsewhere, South Korea's Kospi fell 0.9 percent to 1,826.49. In Japan, financial markets were closed for a public holiday.

Oil prices tracked equities lower, with benchmark crude for February delivery down 81 cents at $101.75 a barrel in electronic trading on the New York Mercantile Exchange.