City Watch: No end in sight to scepticism over the euro project, says Mark Marshall of Charles Stanley & Co

AS the New Democracy party seeks to form a coalition government following the rejection of its radical leftist opponents, stock markets breathed a collective sigh of relief that Greece has not chosen a path that would lead to an early exit from the euro. The euro therefore survives for now but a muted response from the markets reveals continued scepticism over the whole euro project and more particularly, the threat posed from Spain, which last week became the fourth eurozone economy to seek an EU bailout.

Here in the UK, the rapidly deteriorating economy brought about a change of policy last week, as both Chancellor and Bank of England announced plans to deploy new fire power of �100billion directed at the UK banks. The money is to be used to prop up the British economy, through cheap loans in return for the banks’ commitment to increase lending to households and businesses. Banking stocks initially jumped on the news, but by midday yesterday most had given back their gains.

With the weekend’s election out of the way, the financial markets will now focus on the G-20 meeting taking place in Mexico today. The escalation in the eurozone debt crisis will take centre stage but investors are unlikely to expect too much from the meeting.

The main story in the UK equity market is that Cable & Wireless Worldwide has secured approval for an agreed �1.04bn takeover by Vodafone, after its largest shareholder Orbis Investment Management agreed to accept the 38p per share offer. This is an attractive deal for Vodafone, which might have been prepared to pay more, but for the withdrawal of Tata, the only other bidder in contention.

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