TOPWRAP 2-Markets punish euro, shares before EU talks

* EU ministers set to agree tougher controls for hedge funds

* Greek PM calls for scrapping of credit default swaps

(Adds ECB’s Nowotny)

By Jan Strupczewski

BRUSSELS, May 17 (BestGrowthStock) – The euro hit a four-year low on
Monday on fears that austerity measures would stifle recovery,
as European finance ministers prepared to discuss tighter
regulation a week after launching a $1 trillion rescue plan.

German Chancellor Angela Merkel said on Sunday the rescue
package had only bought the euro zone time to tackle its basic
problem — a yawning gap between its strongest and weakest
economies.

The euro (EUR=: ) slumped to a four-year low on Monday on
Asian markets after Friday’s sell-off in the West, falling to
its lowest since April 2006 on $1.2234, while investors sought
safety in gold. [nLDE64G0VE]

“It’s the safe-haven thing. Gold doesn’t earn you any
interest or dividends, but who cares? … The euro zone is a
house of cards,” a Europe-based gold trader said.

But a Governing Council member of the European Central Bank,
Ewald Nowotny, said the euro was trading in a normal range and
there was no reason for hysteria.

Bank shares in Greece, whose debt crisis prompted the rescue
package aimed at stopping a spread to other vulnerable euro zone
members and even destabilising the global economy, tumbled four
percent on Monday.

Greek Prime Minister George Papandreou was quoted on Monday
as saying that he had written a letter to U.S. President Barack
Obama jointly with Germany’s Merkel, French President Nicolas
Sarkozy and Eurogroup chairman Jean-Claude Juncker on whether
the market in credit default swaps should be closed.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Euro zone crisis in graphics: http://r.reuters.com/fyw72j
Greece, Spain, Portugal indicatorshttp://r.reuters.com/fys83k
Govt deficit reduction projectionshttp://r.reuters.com/rud93k
Rescue package and EU debt http://link.reuters.com/nam43k
Bank exposure to Greece,Portugal http://r.reuters.com/fac32k
For other stories on the euro zone crisis (EU/LOOK: )
For Top News on the crisis http://r.reuters.com/hus75h
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

In an interview with Germany’s Handelsblatt newspaper,
Papandreou criticised financial markets for overreacting to
Greek’s debt crisis and accused speculators of helping to
provoke panic reactions.

“Angela Merkel, Nicolas Sarkozy, Jean-Claude Juncker and I
have suggested in a joint letter to Barack Obama whether the
markets for credit default swaps … should not be closed. The
G20 countries want to discuss this,” he said.

Politicians have long called for tighter control of
speculators, who they believe exacerbated Greece’s borrowing
problems by snapping up insurance that it could default.

But Papandreou’s call to consider closing the market for
this insurance, known as credit default swaps, appeared to go
further than anything demanded so far and would probably meet
stiff opposition from companies and other bond buyers who depend
on it to cover their risk.

CONTROLS ON HEDGE FUNDS

Papandreou’s remarks come ahead of the meeting of European
finance ministers in Brussels that is set to sign off tougher
controls for hedge funds and private equity.

Britain has long sought to water down these rules although
it is now possible that countries such as Germany and France
will overrule London in a vote, forcing it to accept a stricter
regime.

British finance minister George Osborne said on Monday the
new coalition government would next Monday outline six billion
pounds ($8.75 billion) of spending cuts this year ahead of its
first budget on June 22.

“Deficit reduction and continuing to ensure the economic
recovery is the most urgent issue facing Britain,” Osborne told
reporters. “We understand that and we need to get moving.”

Britain’s budget deficit is running at close to 12 percent
of GDP, a similar level to that of crisis-hit Greece, and the
new government has said bringing it down is a priority to avoid
another economic crisis.

In her speech on Sunday, Merkel backed the huge European
Union rescue package. Until recently reluctant to back bailouts
for Greece and other nations, she said far more was needed.

“We’ve done no more than buy time for ourselves to clear up
the differences in competitiveness and in budget deficits of
individual euro zone countries,” she said. “If we simply ignore
this problem we won’t be able to calm down this situation.”

“In the past week we have experienced … how there has been
speculation against the euro, our currency,” she told the German
Federation of Trades Unions. “This calls for more regulation.”

Stock Market

(Additional reporting by John O’Donnell; Writing by Charles
Dick; Editing by Dominic Evans)

TOPWRAP 2-Markets punish euro, shares before EU talks