Markets relieved to see Greece avoid snap polls

* Greek bank shares jump more than 4 pct, lead stocks higher

* Bond yield spread tightens by 24 bps, seen narrowing more

* Papandreou rules out early national election

By George Georgiopoulos

ATHENS, Nov 8 (BestGrowthStock) – Financial markets greeted Greek
Prime Minister George Papandreou’s decision not to call early
national elections with relief on Monday with bond yield spreads
narrowing and shares rallying, led by banks.

Papandreou’s threat of snap polls if his ruling socialists
fared poorly in Sunday’s municipal polls had unnerved markets,
pressuring equities and contributing to more than 200 basis
points of spread widening as investors braced for political risk
in a bad week generally for peripheral euro zone countries.

“Banks are showing strength, leading the broader equities
market higher. Traders are relieved the worst-case scenario of
early national elections is out of the picture, reducing
uncertainty,” said Theodore Krintas, head of wealth management
at Attica Bank (BOAr.AT: ).

At 0919 GMT, The Athens stock exchange’s banking index
(.FTATBNK: ) was up 3.05 points, trimming earlier gains of more
than 4 percent, still leading the broader market’s (.ATG: ) 2.1
percent advance.

Greek banks, down 45 percent year-to-date, are fortifying
their balance sheets through cash calls and asset sales to
reduce dependence on European Central Bank funding and cushion
the impact of recession and the debt crisis.

The country’s largest lender National Bank (NBGr.AT: ), which
raised 1.8 billion euros last month via a rights issue was
gaining 3.8 percent to 7.67 euros. Alpha Bank (ACBr.AT: ) climbed
4.6 percent.

JITTERS EASE

Barely a year in office, Papandreou had threatened to
dissolve parliament if the first round of regional polls
failed to give him a mandate to pursue budget cuts and reforms
agreed in May under a 110 billion-euro ($154.4 billion) EU/IMF
bailout to save Greece from bankruptcy.

Making things worse, he toyed with voters’ and markets’
nerves by not being clear about what would constitute a big
enough disapproval of his policies to prompt snap polls.

Papandreou late on Sunday ruled out a dissolution of
parliament. With 96 percent of the vote counted on Monday, his
socialist party (PASOK) was ahead in seven out of 13 regions in
the first round. In the 2009 national elections, PASOK won in
all 13 regions.

In the bond market, the yield spread of 10-year Greek
government paper (GR10YT=TWEB: ) over German bunds tightened by 24
basis points to 900 bps, starting to retrace part of its big
move from around 650 bps, when Papandreou first hinted of snap
polls.

“We are seeing a positive reaction, as a chunk of risk is
removed, other things being equal, leading to tighter spreads,”
said economist Platon Monokroussos at EFG Eurobank. “We may see
further narrowing to 800 bps this week.”

One clear message in Sunday’s polls was that voters did not
want early elections. Based on one exit opinion poll, more than
76 percent had a negative view of Papandreou’s tactic to
threaten snap polls and three out of 10 said it did affect the
way they voted.

Many showed their discontent with abstention. About 40
percent of voters did not show up at the polling stations and
some 10 percent of those who did cast a blank or invalid ballot.

Traders said despite the relief rally Greece was not out of
the woods yet and challenges remained as it struggles to dig out
of its debt crisis.

“The positive reaction after the significant deterioration
in sentiment was to be expected with the threat of snap polls
removed. But the relief rally has an expiration date, there is
an upcoming revision of last year’s deficit by Eurostat in
mid-November and the finalisation of next year’s budget,” said a
trader at an Athens-based securities firm who declined to be
named.
(Editing by Stephen Nisbet)

Markets relieved to see Greece avoid snap polls