Europe Stocks, Euro Hit as Greek Talks Stumble -- 2nd Update

By Josie Cox

Talks between Greece and its European creditors collapsed over the weekend, sending shock waves through European markets Monday.

By midmorning, the Stoxx Europe 600 index was trading around 1% lower, weighed down by a 1.2% slide on Germany's DAX-30. Athens' main stock exchange fell by just over 5%, led by a particularly steep decline in banking stocks.

Shares in Alpha Bank AE, Eurobank Ergasias SA, National Bank of Greece SA and Piraeus Bank SA were all down between 6.5% and 14% by midmorning, meaning that they have now all declined more than 18% since the start of June. So far in 2015, all are nursing losses of between 35% and 65%.

Greek bonds tumbled too Monday, sending the yield on the country's 2-year debt up to almost 28%, more than 3 percentage points higher on the day and a level last seen in late April. Yields rise as bond prices fall.

Over the weekend, European officials dismissed the Greek government's latest proposals, describing them as "vague and repetitive." Last week the International Monetary Fund pulled out of the Greek bailout talks, citing lack of progress.

The euro was trading around 0.2% lower Monday, at around $1.124 to the buck. Several strategists said that the bloc's currency would likely remain under pressure until a resolution is found.

"Creditors are getting tired with the negotiations," said Eirini Tsekeridou, an analyst at Swiss private bank Julius Baer. Ian Williams, economist and strategist at brokerage Peel Hunt, said that hopes for a compromise are diminishing, while strategists at BNP Paribas wrote in a note that "the risk of unfavorable scenarios, such as a default, has undoubtedly risen."

This week attention will be on Thursday's Eurogroup meeting, ahead of a Brussels summit on June 25, and a hefty Greek debt repayment deadline on June 30.

Credit Suisse economists said Thursday's meeting would likely be "one of the last chances to rubber stamp an agreement between Greece and its creditors."

Back in debt markets, the yield on the 10-year German government bond was slightly less than 0.02 percentage point lower at around 0.81% by midmorning.

Yields on Spanish and Italian 10-year debt, which some strategists say could be most affected by a Greek default, were higher at around 2.30% and 2.28% respectively.

"From a market perspective the concern is that if Greece was to default and/or exit, then it might encourage others to do the same," said Gary Jenkins, a credit strategist at London-based asset manager LNG Capital. That, he said, "puts the entire eurozone project at risk of collapse."

In the U.S., the S&P 500 was indicated opening 0.3% lower. Future contracts don't always accurately predict moves after the opening bell though.

In Asia, the Nikkei ended Monday marginally lower, marking its fifth loss in the past seven sessions, with strategists also citing tension over unfruitful Greek debt talks as well as fears over the implications of a U.S. interest rate increase in coming months.

Brent crude edged 0.3% lower to around $64.45 a barrel, while gold lost 0.2% to $1,177.30 a troy ounce.

Write to Josie Cox at josie.cox@wsj.com

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