8 May 2010 - Global Markets Review

Good Morning Ladies & Gentlemen,

Financial Definition - Contagion:

"When an economic crisis in one country's bond or equity markets spreads to other countries which experience the same problems. The term comes from the more general definition of contagion, which is a highly transmittable disease."

As if you hadn't guessed, I'm going to address the 'Greece' debacle this morning but first, I'd like to start with Spain.

The downgrading of Spain was done for strange reasons. Spain has a debt to GDP of 90% (against 144% of for Greece) and a budget deficit of 7% (against Greece's 14%). More importantly, the spread over German bunds is 250 bps against 700bps. With an AA rating (compared to Greece's BB), even after the recent downgrading from AAA, Spanish creditworthiness is strong.

We are living in a strange world where everything that is said can be published and then becomes a self-fulfilling prophecy. The role of the media is important, but also the way the authorities communicate is critical.

Jose Luis Rodriguez Zapatero and his Government need to stick to the facts rather than threatening the rating agencies or the markets. On the day Spain was downgraded, it was portrayed as a catastrophic situation. Now is not the time for over dramatization and the endless shows of the European leaders give more an impression of confusion than leadership.

Whoever launched the rumor of a $ 350 billion IMF financing for Spain that made the markets immediately tumble must be the same people who spread rumors to cover their short positions. Unfortunately short sales in fixed income are neither well regulated nor monitored. This was insane. But the fact that the market believed the rumor for a few hours is in itself a sign of its lack of knowledge.

The Spanish problem is totally different from that of Greece and these two should not be confused in the market.

The Zapatero Government has been slow to act forcefully to the problems in the "cajas de ahorros." These "savings banks" are mostly providers of mortgages and many are close to collapse and will only survive through consolidation. Local politics have delayed some of those transactions and the Spanish Government has not acted as decisively as it should have.

Yet this is ultimately more of a private sector problem, since those cajas heavily borrowed abroad benefitting, until now, of the public sector's AAA rating.

The largest Spanish banks, especially Bilbao Vizcaya and Santander had limited exposure to the subprime markets and are perfectly capable of weathering the storm of the real estate market collapse in Spain.

Contagion should only happen in my view, when there is an immediate connection between the issuers.

While they share the commonality of the Euro, and therefore the slow growth in 2010, the decrease of the value of the European currency is also benefitting to them. Beyond that the situation of each individual country is specific and amalgamation makes no sense.

The amalgamation could provoke contagion, but it definitely does not need to be the case.

Ladies and Gentlemen, never having been one to sit on the fence in issues of importance, I would rather offer my opinion on Europe than sit back and watch panic set in - which in my opinion, is the last thing that needs to happen.

Yes, there are major issues here for not just Greece, Spain, Portugal and Ireland (the so-called PIGS countries), but we also need to look at the UK and Italy - both of which have severe problems of their own - but only one of which is in the Euro.

And it is Italy that I think holds the key as to whether Europe sinks into an abyss or can collectively recover - albeit slowly.

The Greek crisis is a defining moment for the Euro zone, but especially so for the European Central Bank. For the first time in its short history, the bank's independence could be seriously threatened. The calls for the ECB to crank up its printing presses to solve the Euro zone's sovereign-debt problems are growing louder.

After struggling for months, the Euro zone, together with the IMF, finally launched last weekend a €110 billion rescue package for Greece that requires ambitious fiscal adjustments in Athens. The program was designed to "shock and awe" markets, to humble them by making them irrelevant to Greece's financing needs for at least two years. The markets brushed it all aside as a speck of dust.

Contagion pressure on other peripheral markets continued unabated, and the underlying belief is that while Portugal is small enough that it could also be bailed out, Spain is not, and Italy (admittedly much more resilient) is the nuclear land mine that no one dares to mention (except perhaps me).

This is why there is growing and insistent speculation that the ECB might have to step in with direct purchases of government bonds. Recent statements by ECB President Jean-Claude Trichet and Executive Board Member Jürgen Stark suggest that the central bank's governing council has discussed this option and not dismissed it.

This is both understandable and worrying. The ECB has already been forced into an embarrassing turnaround on its collateral policy. It just eliminated the minimum rating requirements for Greek sovereign debt after having stated earlier-with defiant confidence-that it would never change its rules for the sake of a single country.

But in this case it was the initial tough talk that was reckless, not the about-face. It is perfectly sensible for the ECB to show greater flexibility in accepting as collateral even the downgraded debt of one of its own member states when the alternative is a serious risk of financial instability. If the ECB no longer accepted Greek sovereign debt as collateral, some of the banks holding it might face a sudden liquidity shortage that could endanger their survival; and indeed the very risk of this happening could paralyze Europe's interbank markets.

But outright purchases of government debt are a whole different kettle of fish. It would be difficult to justify such a dramatic step as necessary to ensure the Euro zone's financial stability. We have not even come close to the kind of indiscriminate panic selling that could disrupt markets in a way similar to the post-Lehman paralysis. Markets are largely repricing sovereign risk across Euro-zone countries to account for the dramatic divergences in fiscal performance and competitiveness over the last 10 years. Some price movements might be exaggerated, but overall Euro-zone sovereign-bond yields are not grossly out of line with fundamentals.

In addition, the area's economic recovery is unfolding as expected, if anything with hints of upside risks. It's clearly a two-speed recovery, with Germany riding its export boom and France picking up at a less buoyant but more balanced pace, while the periphery languishes. But with headline inflation rekindled by higher commodity prices, macroeconomic conditions in the Euro zone's "core" could even soon justify tighter monetary policy. Classic quantitative easing to defuse deflation risks, as the US Federal Reserve and the Bank of England did, is no longer appropriate.

The government-bond purchases that the ECB is being pushed to consider would therefore be nothing other than the pure and simple monetization of excessive fiscal deficits. This seems to be what financial markets crave and fear at the same time.

This is particularly troubling as both the ECB and the Fed seem to be coming under strong political pressure. The Fed, after having been subjected to considerable criticism by politicians and the public alike for allegedly having put taxpayer money at risk to save the banks, faces the threat of more intrusive oversight that could open the way for greater political influence on monetary policy-making. The ECB, while formally still shielded by its statutory independence, has allowed itself to be drawn into the politics of the Greek crisis. During that process, Euro-zone governments publicly overruled the ECB on the IMF involvement, which the bank originally opposed. The ECB was then forced to eat its words on the collateral rules. And the central bank now seems open to the possibility of monetizing fiscal deficits, while the Fed maintains an unshakably dovish rhetoric even as the recovery clearly takes hold.

The "Great Moderation" might have been a great illusion, but central-bank independence was one of the key economic-policy achievements of the last decades, and it must be preserved. The alternative would be the end of price stability.

During the course of the financial crisis, the huge imbalances accumulated by the private sector were largely shifted to the government's books in an effort to control the necessary deleveraging. If we now just shift those imbalances to the balance sheet of central banks, the unavoidable result will be inflation, and given the magnitude of these imbalances we will have no way of ensuring that a rise in inflation would be moderate and controlled.

Markets already doubt the governments' commitment to gradually restore fiscal discipline, and fear that monetization will be chosen as the easy way out. Once investors start believing monetization is inevitable, it would un-anchor inflation expectations and undermine financial stability much more than the current tensions in sovereign debt markets.

German Chancellor Angela Merkel and French President Nicolas Sarkozy wrote in a letter published in daily Le Monde Thursday that they were "fully committed to preserve the solidity, stability and unity of the Euro zone."

They called for giving new teeth to the basic rules underpinning the Euro - rules that mandate limits on government spending but which have been treated as an honor system and flouted for years by European governments.

"For economic and monetary union to remain a success story, dealing with this crisis alone will not suffice. We need to go further in drawing all the lessons and in taking all necessary measures to avoid a repetition of a crisis of this kind," the letter says.

They call for "reinforcing fiscal surveillance within the Euro area, including by providing for more effective sanctions" against those who violate deficit limits.

German Finance Minister Wolfgang Schaeuble said the governments that use the Euro must "avoid under any circumstances the bankruptcy of Greece because the consequences would be unforeseeable and irresponsible." The German parliament was getting ready to vote Friday on Germany's share of the Greek bailout.

The concern is that more bailouts and financial pain for banks are in the offing, as well as more stress on Europe's project of economic and political integration.

European Central Bank President Trichet played down contagion fears after the bank left interest rates unchanged at 1%. "Portugal and Greece are not on the same boat, and this is very visible when you look at the facts and figures," he told reporters after the rate decision in Lisbon. "Portugal is not Greece. Spain is not Greece."

But we have an added problem here Ladies & Gentlemen and not for the first time, it is US-driven.

Those so-called 'Ratings Agencies' - Fitch, Moody's and S & P (the same Ratings Agencies that failed to spot the Sub-Prime Crisis) - have got the bit between the teeth and they can see a way of apportioning blame for all things bad that have happened in global finance over the past three years and deflecting global attention away from Goldman Sachs and the US economy.

I can just picture these people now in their swanky Wall Street offices, a map of Europe stuck on the conference room wall and them taking it in turn to stick pins in the map.

"Hey dude, Greece begins with the letter G - is Greenland in the Euro? No; dammit, let's downgrade Gibraltar then, it's between Spain and Portugal!"

Sound pathetic? Of course it is but let's face it, how many US analysts have got things right in the past decade or two - not many!

But I go back once again to basics - the US controls global media and if they want to 'spin' the European problem out of all context, then they will do just that and revel in the opportunity. Hey, who's looking at Goldman Sachs while Greece burns and Rome 'fiddles' (every pun intended).

So what I say is this; let's not panic.

However, we all need to be aware that this is the greatest crisis to hit the Eurozone and the Euro since its inception and we need to plan ahead as best we can.

Talking of the latter, the Euro; this has taken up 99% of my working week this week as I respond to that million Euro question, "what is going to happen to the Euro"?

A month ago that is all, where I was vocal that the US Dollar - whilst seemingly stronger now than most currencies - was in for a fall in the late short/early medium terms because fundamentally there was (and still is) nothing to support a strong Dollar. This was pure Euro weakness and I for one would never have predicted that the Euro would fall through multiple support levels as quickly as it did.

This is to all intents and purposes a runaway train now but - and it is a big but - could the Euro be set to rally against the Dollar after the 16-nation currency fell to more than 5% below its 21-day moving average? that is how it looks on paper at least.

The single currency slumped to $1.2529 Thursday, the weakest level since March 5, 2009 (although now sat at 1.2752 as I type this), creating the basis for an advance to around $1.32. Given the fact that this currency pair normally moves within a 3% range from its 21-day moving average, we can judge that the recent decline from the trend line is excessive (by usual standards is a caveat here, but we are not in 'usual' times). This will potentially make the Euro eligible for a short-term rebound.

How 'short-term' is the great question though - will it manage a recovery and if so, how long will that recovery last?

If I could answer the question with confidence, then rest assured that I would and if I could predict the next move for the Euro accurately, I'd have retired years ago.

But what I can advise Ladies & Gentlemen is that in times of complete uncertainty (which now have arisen in relation to the future movement of the Euro) you need to hedge your bets; start looking at safer currencies for the short-term but not with all of your Euro - stage it. 25% of your Euro cash holdings perhaps now into the USD or the Swiss Franc or even Gold.

Then if the Euro continues to fall and drops below 1.20, another 25%.

This is hedging the risk to a certain extent but then what if the Euro plummets through 1.20 as quickly as it did 1.30 - where then?

This would boil down to whether you were a cautious person or someone waiting for an opportunity and if you were the former, I'd convert it all into a safer haven and wait it out or if you're the latter, you'll hang in there for the bottom - wherever that bottom may be.

But if you take the second option, you need to have some serious mettle and be comfortable that the amount of Euro you are 'playing' with could potentially drop through the floor and that bottom may never, for all intents and purposes, arrive.

Of course this is an absolute worst-case-scenario but that is what you need to look at here.

My advice would be to stage the hedging and if it all looks like it's going to sea in a boat, take a complete flight to safety and sit it out in one of those safe havens.

The 'sea' analogy is very apt here because what would you do in the event of serious flooding? You'd take what you could and go and sit it out somewhere dry until the floods abated.

Either that or you'd do what Noah did and build an Ark and prepare for the worst!

On to the numbers on the boards this week:

US Markets

How the US did this week .....

US Summary US stocks extended their losses on Friday as investors struggled to understand Thursday's dramatic trading swings and remained focused on the European fiscal and political situations, overshadowing a positive US non-farm payrolls report.

The three main indices have erased all the gains they recorded this year.

At the close on Friday, the S&P 500 was 1.5% lower at 1,110.86 - 6.4% down since the start of the week.

The Dow Jones Industrial Average had lost 1.3% to 10,379.60, leaving it 5.7% lower on the week. The Nasdaq Composite had dropped 2.3% to 2,265.64, down 7.9% over the week.

The Vix index, a measure of market volatility, was up 26% on Friday to 41.32, and 87.4% higher on the week.

Technology stocks led the session's slide on Friday. Chipmaker SanDisk fell 5.4% to $37.61, Cisco lost 3.1% to $24.71, Apple was down 4.2% to $235.86 and Hewlett-Packard declined 3.3% to $46.73.

US-listed shares in Panasonic on Friday lost 2.1% to $13.75 in spite of the Japan-based consumer electronics company forecasting its first annual profit in three years, lifted by stronger demand for plasma televisions.

The week's market volatility contributed to the postponement of several initial public offerings, including Americold Realty Trust's $680m listing, which was expected to be the largest IPO in the US this year.

AIG rose 5.3% on Friday to $38.70 as the bailed-out insurer posted a profit for the third time in the past four quarters on lower writedowns and higher investment income.

Net income in the quarter was $1.45bn compared with a loss of $4.35bn last year.

Goldman Sachs rose 0.5% to $142.99 on Friday on the day of its annual shareholder meeting.

Lawyers acting for the bank are reported to have met the Securities and Exchange Commission to discuss a possible settlement of the fraud lawsuit the regulator filed against Goldman last month.

The financial sector was lower on the week as Citigroup fell 8.5% to $4, JPMorganlost 4.3% to $40.76 and Morgan Stanley slipped 8.2% to $27.75.

Mergers and acquisitions activity was weak. Continental Airlinesfell 16.7% to $18.61 over the week as the fourth-biggest US airline announced on Monday a merger with United Airlines' parent UAL Corp, the third-biggest US airline, valued at $3bn. The deal will create the world's biggest carrier by passenger traffic, which will retain United's name. United fell 17.2% to $17.89.

Stanley surged 26.9% on Friday to $36.79 as CGI Group, a computer services provider based in Canada, said it would buy the information technology group for about $1.1bn in cash - a premium of about 29% to Stanley's closing price on Thursday.

Transocean the world's largest offshore oil drilling contractor and owner of the BP-contracted oil rig leaking into the Gulf of Mexico, was down 6% to $68.01 during the week.

The stock was downgraded to "underperform" from "buy" on Friday by Crédit Agricole with a 12-month target price of $74 per share. US-listed shares in BP lost 5.9% to $49.06 over the week.

European Markets

What has been happening in Europe this week .....

Europe Summary European stocks plunged on Friday, erasing all gains made so far this year, as fears about Greece's debt crisis went global.

Investors saw the Greek situation as an omen of turmoil and instability in other European economies, which was made worse by an uncertain outcome in the UK's general election.

The FTSE Eurofirst 300 suffered its biggest one-day fall in 14 months after US shares tumbled heavily as computerised trading exacerbated declines triggered by the Greek debt crisis.

The European index fell 3.9% to 967.42, its biggest daily loss since March 2009. It lost 8.7% over the week, its largest weekly fall since November 2008.

Eurozone periphery stocks were under immense pressure. Greek and Spanish stocks suffered their biggest weekly losses since October 2008. The Athens general index slid 12.8% this week to 1,630.47, while Spain's Ibex 35 dropped 13.8% to 9,046.1.

Portugal's PSI 20 fell 10.6% over the week to 6,624.29, its biggest weekly drop since November 2008. The Irish Stock Exchange fell 4.1% on Friday to 1,982.71, dropping 12.2% this week.

Emerging European market stocks fell sharply. Turkey's ISE index lost 5.5% to 52,686.97 on Friday. Russia's Micex index weakened 5.6% to 1,288.61, taking its losses for the week to 10.3%.

GERMANY

German stocks fell for a fourth day, with the DAX Index posting its biggest single-day decline since July, after US shares Thursday tumbled the most in a year as computerized trading exacerbated a selloff triggered by Europe's debt crisis.

Siemens AG retreated as ING Groep NV recommended selling the shares, while Deutsche Boerse AG and Volkswagen AG lost more than 2%. MAN SE posted the biggest drop in the German gauge, losing 5.9%. Commerzbank AG rose 1% as Credit Suisse Group AG recommended the shares.

The DAX lost 3.3% to 5,715.09 in Frankfurt, as the index posted its biggest weekly drop since February 2009. The gauge has retreated 9.7% from this year's high on April 26 amid concern that European leaders won't do enough to keep the most indebted nations in the region from defaulting. The broader HDAX Index also sank 3.3% Friday.

In Berlin, the lower house of parliament voted 390 to 72 in favor of Germany's share of the 110 billion-Euro ($140 billion) lifeline from the Euro-region and International Monetary Fund that will allow Greece to avoid default. The upper house, or Bundesrat, also backed the bill Friday and President Horst Koehler, a former IMF managing director, signed it into law.

Siemens declined 3.6% to 68.25 Euros as ING rated Europe's largest engineering company "sell" in new coverage.

Deutsche Boerse, the operator of the Frankfurt stock exchange, sank 5.6% to 52.01 Euros, while Volkswagen, Europe's largest carmaker, slid 2.8% to 67.31 Euros. MAN SE, Europe's third-largest truckmaker, retreated 5.9% to 63.65 Euros.

Munich Re slid 3% to 101 Euros after the world's largest reinsurer said its full-year profit target "is increasingly ambitious" following a number of claims from natural disasters.

Deutsche Lufthansa AG, Europe's second-biggest airline, declined 3.4% to 11.29 Euros. The Stoxx 600 Travel & Leisure Index fell as much as 6.1% Friday, the worst performance among 19 industry groups in the Stoxx Europe 600 Index.

Draegerwerk AG & Co. KGAA lost 0.8% to 46.21 Euros. The German maker of medical equipment plans to sell new shares this year, Handelsblatt reported, citing an interview with Chief Executive Officer Stefan Draeger.

Commerzbank surged 1% to 5.71 Euros, the only gain in the DAX. Germany's second-biggest bank was raised to "outperform" from "underperform" at Credit Suisse, which said "credit quality is genuinely better than expected" and cited a "much more favorable" economic environment in a report to clients.

Fielmann AG climbed 2.3% to 55.87 Euros. Europe's largest chain of optical stores was raised to "buy" from "neutral" at BofA Merrill Lynch Global Research, which said the company "offers relatively lower business risk."

The VStoxx Index, which measures options on the Euro Stoxx 50 Index, jumped 35% to 49.60, the biggest gain since October 2008. The Stoxx 600 became "oversold" for the first time in 14 months, according to the so-called Relative Strength Index, which fell to 27.45. The measure last closed below 30 on March 9 last year, after which it rallied 65% through Jan. 19.

Two German real estate mutual funds with 10.5 billion Euros ($13 billion) of assets closed for redemptions Thursday after government proposals to impose writedowns prompted investors to try to withdraw their money.

SEB Asset Management AG closed its ImmoInvest fund and KanAm Grund KAG closed Grundinvest Fonds after German Finance Minister Wolfgang Schaeuble released a draft bill on May 3 that recommended a 10% cut in asset values across the industry.

In the past five years, Germany's 89 billion-Euro real estate mutual-fund industry has been rocked by unprecedented waves of redemptions by investors. The government also proposed a mechanism to smooth out violent swings in appraisal values, which it blames for the surge in redemptions.

The writedown plan triggered "massive uncertainty among investors" and significant outflows, Frankfurt-based SEB said in a statement, without giving the scale of the redemptions.

KanAm said it was "compelled" to halt redemptions in response to "fears of losses among investors and asset managers, resulting in those parties liquidating portfolios as a precaution." Susanne Ludwig, a spokeswoman for the Munich-based asset manager, said outflows since May 3 totaled "hundreds of millions of Euros."

Other proposals in the draft bill include a minimum two- year investment in the funds, a two-year notice period for redemptions and new minimum cash requirements for funds.

FRANCE

French stocks declined for a fourth day, extending this week's slump on the CAC 40 Index, as the biggest monthly increase in US employment in April failed to ease concern the debt crisis in Greece will spread.

The benchmark CAC 40 retreated 163.52, or 4.6%, to 3,392.59, the lowest level this year. The drop brought this week's slump to 11%. All 40 stocks on the measure posted declines Friday. The gauge has slid 17% from this year's high on April 15.

Credit Agricole SA, France's biggest bank by branches, sank 7.2% to 9.06 Euros, a fourth straight decline. The lender's corporate and investment bank has 2.4 billion Euros ($3 billion) of commercial commitments in Greece.

The bank also has sovereign risk of 850 million Euros and interbank risk of 180 million Euros, it said Friday. Greek risk held by the bank's insurance business comes to slightly less than 400 million Euros, it said.

BNP Paribas, France's biggest bank, dropped 5.7% to 43.93 Euros and Societe Generale SA plunged 8% to 32.77 Euros.

Technip SA, Europe's second-largest oilfield-services provider, dropped 3.8% to 52.88 Euros, falling for a fourth day. Crude oil is poised for the biggest weekly decline in 16 months on speculation that the European debt crisis will detail global economic recovery.

The French manufacturing sector continued to improve in April, the latest report from the Markit Economics showed on Monday.

The headline Markit/CDAF Purchasing Managers' Index for manufacturing rose to 56.6 in April from 56.5 in the previous month. This was the biggest reading since July 2006. The flash estimate for April was 56.7. A reading above 50 indicates expansion, while one below 50 suggests contraction.

Markit, said, "April PMI data signalled a continuation of the recent strong growth in the French manufacturing sector. The inventory cycle remains an important driver of expansion alongside markedly rising export sales."

The French service sector expanded at a steep and accelerated rate during April, a survey conducted by Markit Economics further showed on Wednesday.

The headline Markit/CDAF Purchasing Managers' Index rose to a five-month high of 59.2 in April from 53.8 in March. The flash estimate for April was 57.8. At the same time, the composite PMI stood at 59.2, up from 55.8 in March and the flash reading of 58.4.

"PMI data signal an appreciable uptick in growth momentum in France at the start of the second quarter. The sharp acceleration in services activity growth is encouraging after signs of a cooling off during Q1, with expansion becoming more broad-based, having been largely manufacturing-led until now," Markit said.

BELGIUM

Brussels saw its Bel 20 Index close out the week on 2,296.81, a drop of 4.33% on the day Friday.

Economic growth in Belgium is expected to reach 1.35% in 2010 and 1.6% in 2011, with a stable deficit of 5%, according to the latest forecasts from the European Commission.

The country's export-oriented economy is expected to enjoy a marked recovery of international trade, which will permit it to grow more than the Eurozone average of 0.9%.

These figures, however, have not led the Commission to optimistic conclusions. "Based on the export performance of Belgium over the course of these last few years, doubts exist concerning its capacity to benefit fully from the rebound in world trade," the institution stated.

Belgian imports have indeed recorded a "structural loss of market shares for both products and services," particularly because they "are characterized by a specialization in intermediate technologies, easy to imitate, such as chemicals and steel." The rise in Labour costs, more noticeable than in the rest of the Eurozone, have also hurt Belgium's competitiveness.

Exports are also mainly targeting the Euro area, where there is little opportunity for high growth.

Employment, which had resisted the job losses many other countries had suffered during the crisis, is expected to decline in the coming years. The Commission expects an increase in the unemployment rate from 7.9% in 2009 to 8.8% in 2010 and to 9.0% in 2011. "Given the characteristics of the Labour market in Belgium, there is a risk that some unemployed will remain inactive permanently," the Commission added.

On the fiscal front, the Commission predicts a Belgian budget deficit of 5.0% this year, slightly higher than the government forecast of 4.8%. If policies remain unchanged, the deficit would not decrease in 2011, despite government expectations of a decline to 4.1%

Due to the lack of a change in policy, public debt will increase to 99% of the GDP this year, and is expected to reach the 100% threshold in 2011, a level which has not been seen since 2002.

De Beers SA, the world's largest diamond company, used its dominance of rough-gem supply to keep traders out of the market, Belgian competition prosecutors said.

De Beers was summoned to appear before the president of the nation's competition council, a legal panel of the council said Friday in a statement, following a complaint from Diamanthandel A. Spira BVBA, an Antwerp, Belgium-based diamond trading company. The hearing will give De Beers, which is 45% owned by Anglo American Plc, an opportunity to defend its rough- diamond distribution policy.

"De Beers is fully cooperating with the Belgian competition authorities in their investigation," Lynette Gould, a London-based spokeswoman for De Beers, said in an e-mail. "The position of the auditor goes against two earlier decisions of the European Commission dismissing a complaint from Spira against De Beers."

The European Commission, the European Union's antitrust regulator, closed a six-year investigation in January 2007 after De Beers agreed to be more transparent about the way it selects customers. The commission said at the time that more disclosure on the company's "supplier of choice" policy addressed the main competition concerns of complaints it received.

General Motors Co. said Friday that costs related to the termination benefits of staff at its Belgian Opel plant in Antwerp are expected to be around Eur400 million and anticipates these charges to result in future cash expenditures.

"A significant number of employees are expected to accept the terms and leave before the end of June 2010," GM said in a filing to the US Securities and Exchange Commission. The Antwerp plant employs around 2,600 staff.

On April 27, GM's core European Opel unit said in a statement that about 1,250 employees will accept redundancy packages and leave their jobs before the end of June at the latest. The announcement came one day after the company reached an agreement with Labour unions on the closure of the Antwerp part as part of a wide-ranging turnaround plan for the operations. GM plans to streamline the loss-making business and slash European capacity by around 20%.

A memorandum of understanding between GM Europe and Labour representatives foresees that both parties will cooperate in a working group led by the Flemish government to find an outside investor for the plant. The search will run until the end of September.

THE NETHERLANDS

In Amsterdam the AEX ended the trading session Friday at 312.35, down 4.24% for the day.

Post and delivery company TNT booked an 88% increase in net profit in the first three months of this year, due to a recovery at its express arm, cost cuts and more working days.

Net profit reached €143m, compared with €76m in the year-earlier period. Turnover rose 12% to €2.75bn.

The company said it sees 'a modest improvement' in the economy and that express volumes, revenues and results are expected to be 'well above' 2009 levels.

'The profit recovery testifies to the hard work of TNT's employees around the world,' said CEO Peter Bakker in a statement. 'However, as a guide for full year performance, this quarter also needs to be understood as having benefited from extra working days.'

In April, Bakker said TNT is considering either a stock exchange listing or a partnership for its mail unit, which has been hit by falling volumes.

The receivers winding up the affairs of bankrupt bank DSB have decided not to sell off the bank's loan portfolio, the Leeuwarder Courant newspaper reports on Monday.

Instead the receivers are setting up a management company to look after the 150,000 consumer loans and mortgages, the paper said.

Receiver Rutger Schimmelpenninck told the paper a sale at the moment would not generate enough cash, despite talks with a number of parties over the past few months.

Some 200 DSB workers are still employed at the bank's headquarters in Wognum dealing with ongoing business, such as the loans.

The performance-related bonuses paid to bank traders lead them to take risks and should be tackled, according to researchers from the government's CPB economic think tank in a new report.

Regulating senior executive bonuses is not enough because it is traders, not managers who are responsible for risk taking, the report said.

Traders earn large bonuses if they make high profits but face no sanctions if they make a mistake, the researchers said. This means they are driven to take risks.

The researchers suggest setting limits to the size of bonuses and making them more dependent on long-term performance as a way of increasing controls.

The number of people prepared to work until the formal state pension age of 65 has more than doubled in four years to 42%, according to new research by the national statistics office CBS.

But 40% of workers aged over 55 said they were not prepared to work on until they reached the age of 65.

At the moment, only one in seven of the over-60s in the Netherlands is still in work. An increase in the state retirement age from 65 to 67 is set to be a central issue in the June 9 general election.

Construction industry workers are least likely to be willing to work until they are 65. Farm workers and teachers were happiest to work on.

But only 13% said they were willing to work past the age of 65, even though an increase in the pension age is backed by most political parties.

SWITZERLAND

Zurich's SMI completed a frenetic week on 6,205.63, a dip of 2.85% for Friday alone.

Switzerland's main airline, which was taken over by Germany's Lufthansa in 2005, recorded an operative loss of SFr10 million ($9.06 million) in the first quarter of this year.

The strong Swiss currency and rising fuel prices are to blame for the loss, according to a company statement on Wednesday.

Twelve months ago Swiss posted a SFr63 million operative profit.

Swiss chief executive Harry Hohmeister said he was optimistic that business will recover in the second half of the year.

Earlier this week Lufthansa announced an operative loss of €330 million for the first quarter of 2010.

Swiss Re has posted a first-quarter net profit of $158 million (SFr177 million) despite two major natural disasters affecting its property and casualty business.

This is a 22% increase compared with the same period last year when the Zurich-based company posted a $130 million net profit.

Earnings per share were SFr0.49 ($0.44), up from SFr0.45 in the year-earlier period, the company said.

Swiss Re added that the result was affected by high natural catastrophe losses from Chile's huge earthquake on February 27 which killed 486 people, and windstorm Xynthia that swept across western Europe on February 26-28, causing severe damage in Spain and France.

Operating income in Swiss Re's property and casualty business was down 69% at $259 million in the quarter. Life and health insurance brought $345 million.

The April 20 explosion of the Deepwater Horizon oil rig in the Gulf of Mexico, which has caused a major oil spill, will lead to an estimated market loss of between $1.5 billion and $3.5 billion, Swiss Re said. It estimated its own loss from the disaster would be around $200 million before tax.

The Swiss SVME Purchasing Managers' Index, or PMI, rose to its third-highest level ever in April, a joint report from the SVME

Association of Purchasing and Materials Management and Credit Suisse showed Monday.

The PMI rose to 65.9 from 65.5 in March, while economists had forecast drop to 64.5. The seasonally-adjusted PMI has thus remained consistently above the 50-point growth threshold for eight months now.

A breakdown of data showed that Swiss manufacturing output rose for the ninth consecutive month in April on a monthly basis, though the momentum slowed somewhat. Growth in backlogs of orders also eased in the month.

Corporate purchasing was up again for the eighth month in a row in April, but the rate of increase settled back compared with March's record. The purchasing prices sub index marked its highest level since July 2008. The index has now remained above the 50-point growth threshold for eight successive months. The market is obviously feeling a certain amount of price pressure, the report said.

The employment component edged up to show second consecutive rise in industrial employment, which points to a trend reversal on the Labour market.

The Swiss consumer price index, or CPI, rose 1.4% year-on-year in April, unchanged from March, the Federal Statistical Office said Thursday. Economists had forecast the inflation rate to ease to 1.3%.

On a monthly basis, consumer prices climbed 0.9% in April, following just 0.1% rise in March. Prices rose slightly faster than the expected 0.8% growth.

AUSTRIA

In Vienna the ATX headed into the weekend on 2,311.77, a Friday drop of 3.33%.

The chiefs of Austria's biggest banks ensured they would not reduce investments in financially struggling Greece.

Raiffeisenzentralbank (RZB) boss Walter Rothensteiner said after a meeting with the heads of Austria's other four major banks and People's Party (ÖVP) Finance Minister: "We will not speculate against Greece, and we won't reduce our investments in the country."

Austrian banks have invested four to five billion Euros in the European Union (EU) member state which is set to receive 110 billion Euros from the EU's Eurozone countries and the International Monetary Fund (IMF).

The Eurozone describes the 16 EU states which have the Euro as their currency.

Austria will provide around 2.3 billion Euros.

Pröll said there was "no alternative and no plan b" to supporting Greece financially. But he warned: "The time of cheating and tricking is over for Greece."

Pröll added: "Those sums are loans, not gifts. The current situation is painful for Greece, and the action plan is necessary for Europe and reasonable for Austria. The economy and jobs are what this is all about."

The minister last week suggested banks should contribute in helping Greece, but said after meeting the heads of Austria's five main bank institutes: "Banks which already needed state aid should not handle more money to assist Greece. This would be the wrong decision."

Pröll however appealed to bank bosses to hold their promises not to withdraw activities from Greece.

Austria's economy will recover in the second quarter of this year, a leading think tank has predicted Thursday.

Vienna-based Institute for Economic Research (WIFO) said the country's industrial branch's engagement will soar by three% to 79% compared to the first three months of 2010.

WIFO said engagement will continue to increase. "The positive aspects should outweigh negative developments over the next few months," a spokesman for the body said.

WIFO also said that the construction branch is currently "stagnating on an average level", while the tourism branch was doing better than in early 2009.

Bank Austria (BA) chief economist Stefan Bruckbauer said last month he expected the country's industrial branch to grow "by at least four%" this year compared to its performance last year.

WIFO recently corrected its 1.5% growth forecast for the Austrian economy made last December to 1.3% recently, while the Higher Studies (IHS) - Austria's other leading think tank - said it would stick to its 1.3% year on year growth prediction.

Austrians did more than 300 million hours of overtime last year, labour market experts have said.

Upper Austrian Labour Chamber (AKOÖ) president Johann Kalliauer said Thursday that around a third of the 314 million overtime hours was unpaid work.

He further added that the creation of approximately 60,000 new full-time positions was hindered by the massive amount of unpaid extra work done by people across the country every year.

Experts at the Institute for Economic Research (WIFO) said an extra four% of positions would be created by cutting down the weekly working hours of Austrians by an average of ten%.

Official figures presented by the labour ministry earlier this week showed that around 4.9% of people living in Austria were out of work last month.

The European Commission (EC) announced Thursday it expected Austria's jobless rate to reach 5.1% this year and 5.4% next year, while the overall unemployment rate in the European Union's (EU) 27 states is feared to soar by an overall 10.7% year on year in 2010.

Austria's 4.9% is the second-lowest rate in the EU after the Netherlands where 4.1% have no job.

Lower Austrian prosecutors have raided offices at Vienna International Airport (VIA).

Korneuburg state prosecutor Friedrich Köhl said dozens of documents have been confiscated. "It will probably take several weeks to examine them," he added.

A spokesman for Flughafen Wien AG, the company managing VIA, claimed none of their offices were searched. He added it had to be seen whether the firm was an aggrieved party in the possible scam.

Köhl said the searched offices belonged to a firm involved in the controversial Skylink project, adding that the flat of an employee was raided too.

Flughafen Wien AG has been in the news for months over soaring costs of building a new terminal.

Construction of the Skylink site was halted last June when magazines reported that costs could reach a whopping 900 million Euros instead of the initially announced 400 million Euros.

SWEDEN

In Stockholm the OMX ended the trading session at 944.57, down 3.34% for the Friday trading session alone.

Corporate bankruptcies have continued to decline in Sweden, falling 25% in April compared to the same period last year.

The figures, from business and credit information company UC, show a total of 493 companies in Sweden declared bankruptcy last month. In the first four months of 2010, the total number of bankruptcies was 2083, a decline of 19% from the same period in 2009.

The improvement in the economy has increased the purchasing power of consumers and most sectors remain optimistic about the future, the report said.

The five members of the Riksbank Executive Board, who attended the monetary policy committee meeting April 19, unanimously voted to keep the repo rate unchanged at record low of 0.25%, minutes showed Monday.

The meeting held in the absence of Governor Stefan Ingves, who could not make his trip following the volcanic eruption in Iceland, was chaired by First Deputy Governor Svante Öberg.

The Executive Board expects to begin raising the repo rate towards more normal levels with effect from the summer or early autumn. Four of the five Executive Board members supported this view. However, the members of the Executive Board differ slightly in their assessments of whether the repo rate should first be raised in July or September, meeting notes showed.

Lars Svensson suggested that a different repo rate path is needed where the repo rate begins to be raised in December and is then raised at a slightly faster pace.

"It was appropriate to leave the repo rate unchanged at 0.25% at the latest monetary policy meeting in April. I also believe that the forecast for the repo rate was reasonable," Ingves said in a separate release. "In my view we are now approaching such a situation and this is a factor that may weigh in favor of a repo-rate increase in July."

On April 19, the rate-setting board decided to hold the lending rate at 0.75% and the deposit rate at negative 0.25%, with effect from 21 April 2010. Policymakers assessed that the Swedish economy will grow this year and that there appears to have been a turnaround in the Labour market.

Swedish manufacturing activity accelerated in April, a report from the Swedbank/SILF said on Monday.

The seasonally adjusted purchasing managers index or PMI for manufacturing stood at 64 in April, up from 61.1 in the previous month. This was the highest reading since 2006. A year earlier, the PMI reading was 38.8. A reading above 50 indicates expansion, while one below 50 suggests contraction.

Among the sub-indices of the PMI, the manufacturing production rose to 66.3 in April from 63.7 in March, while orders accounted for the biggest positive contribution to the PMI. The demand for Labour improved to the third consecutive month.

The index of suppliers of raw materials and intermediate goods prices increased sharply in April, the index rose to 75.6 from 65.7 in March.

Steel producer SSAB reported a quarterly profit of 83 million kronor ($11.34 million) on Tuesday, beating analyst expectations and a 215 million kronor loss in the same period last year. The company expects that demand for steel will remain strong in the second quarter.

Sales amounted to 8.865 billion kronor compared with 8.035 billion kronor a year earlier. According to Reuters, analysts had on average expected a loss of 105 million kronor and turnover of 9.269 billion kronor.

DENMARK

Copenhagen's OMX rounded out the week Friday at 371.12, down a chunky 4.14% for the days' session.

Bankruptcies for the month of April showed an increase of 26% over the same period last year and experts aren't surprised

Figures from credit analysis group Experian showed that 575 companies went bust last month - up from the average monthly bankruptcy figures of around 210 just two years ago.

Denmark's retail sales increased a seasonally adjusted 2.9% on a monthly basis in March, faster than the 0.5% growth in the previous month, the Statistics Denmark said on Monday. This was the biggest level since September 2008.

Retail sales for food and other groceries rose 2.5% annually in March, while sales for clothing surged 4.9%. Retail sales for other consumer goods were up 2.8%.

Year-on-year, retail sales climbed 8.1% in March, compared to the 0.8% fall in the preceding month.

Denmark's manufacturing activity growth slowed in April, Purchasing and Logistics Forum/DILF said on Monday.

The seasonally adjusted purchasing managers index or PMI for manufacturing stood at 51.6 in April, down from 53.9 in the previous month. However, the PMI was expanded for the fourth successive month in April. The PMI for March was revised from 54.3 reported initially. A reading above 50 indicates expansion, while a reading below 50 signals a contraction.

Novo A/S, which owns pharmaceutical companies Novo Nordisk and Novozymes, has more than weathered the financial crisis, which in 2008 stripped around 15 billion kroner of its value away.

Since then the company has been churning forward, recouping 12 billion kroner of that loss in 2009 and having already increased its value by a whopping 23 billion kroner the first four months of this year.

The rise in value is attributed to higher stock prices, share buy-back programs, larger profit margins and more aggressive financial backing from the Novo Nordisk Foundation.

Members of a leading foundation supporting left-of-centre causes believe its demise was due to financial mismanagement

The political left is mourning the demise of one of the movement's biggest financial supporters after Plum Foundation announced Friday it is filing for bankruptcy. The move follows reports of gross mismanagement by members of its board.

According to Berlingske Tidende newspaper, the fund had assets of 300 million kroner when it was established in 1997 by Lise Plum, daughter of insulation company Rockwool's founder Henrik Johan Henriksen.

The foundation's stated goal is to support human rights human rights, ecology, non-violent conflict resolution and democracy.

The problems emerged last August, when Plums Økologifond, an organisation supporting organic farming that it helped to create, complained to the Civil Affairs Agency over what it believed were excessive administrative costs charged by the Plum Foundation.

In addition, it accused the Plum Foundation of not donating money to organic initiatives for a number of yearsCurrently, the Plum Foundation owes a reported 24 million kroner to tax authority SKAT and to Nordea Bank.

Previous reports carried by Berlingske Tidende revealed that board members had allegedly directed foundation money to their own projects. It was also found that fees charged by director Christian Harlangamounted to the foundation's largest expense.

Harlang was fired by a majority on the board last summer but appealed that decision to the Civil Affairs Agency. In November, the agency ruled to uphold the dismissal.

An investigation by the Danish Bar and Law Society determined in December that Harlang had not violated any laws while head of the foundation. But now the foundation's board is deciding whether it will seek sue Harlang for depleting its funds, according to Berlingske Tidende.

Harlang has denied all charges of wrongdoing.

NORWAY

In Oslo, the OBX finished the week Friday on 317.82, a session drop of 2.73% for the day.

In his Labour Day speech at Lillehammer, Prime Minister Jens Stoltenberg said that his government's estimates for unemployment would be reduced by 30,000 in the revised National Budget.

This is 1 percentage point lower than we estimated a year ago, and shows that our measures in fighting unemployment has worked, the Prime Minister said.

However, he cautioned that the fight was far from over: - Although our unemployment rate is the lowest in Europe, unemployment continues to grow in our neighbouring countries, and we must therefore continue our efforts to keep ours down, he said.

Statoil's first quarter 2010 net operating income was NOK 39.6 billion, an 11% increase compared to NOK 35.5 billion in the first quarter of 2009.

The quarterly result was mainly affected by a 48% increase in liquids prices measured in NOK and a 35% decrease in gas prices.

Adjusted earnings in the first quarter of 2010 were NOK 38.9 billion. The 8% increase in adjusted earnings from first quarter 2009 to first quarter 2010 was primarily caused by the increase in prices for liquids and was only partly offset by reduced gas prices, lower entitlement volumes and lower results from oil trading.

Net income in the first quarter of 2010 was NOK 11.1 billion, compared to NOK 4.0 billion in the first quarter of 2009. The 181% increase was mainly due to higher net operating income in International Exploration & Production, reduced losses on net financial items and a lower tax rate.

Adjusted earnings after tax were NOK 12.1 billion in the first quarter of 2010.

Adjusted earnings after tax exclude the effect of tax on net financial items and represent an effective adjusted tax rate of 69% in the first quarter of 2010.

"I am pleased with the results in the first quarter. Our equity production has been high and oil prices have been rising. Despite weaknesses in the gas market our Natural Gas business has delivered solid results, as a consequence of high offtake from our customers and good trading performance," says Statoil's chief executive Helge Lund.

"Project activity is maintained at a high level. In the first quarter we have sanctioned six new projects. Among them are important field developments like Gudrun and Marulk on the Norwegian Continental Shelf and the Chirag Oil Project in Azerbaijan. These projects are underpinning our long term growth ambitions," says Lund.

Greek state bonds have been degraded to junk status. The Norwegian Petroleum Fund has NOK 10 billion invested in these bonds.

In addition, the petroleum fund, Statens pensjonsfond - utland, probably owns shares in downgraded Greek banks, according to Stavanger Aftenblad.

The downgrading last week happened after the financial solidity of Greek banks was rated as poor and without any immediate hope of improvement.

FINLAND

In Helsinki Friday, the OMX closed the day on 6,263.22, that was a hefty 4.30% drop for Friday's session alone.

Thursday, the Statistics Finland announced that the new motor vehicle registrations increased 21% on an annual basis in April, compared to the 19.9% fall in the previous month.

The new motor vehicle registrations totaled 21,973 in April, of which 11,464 were automobiles.

The number of new passenger cars registered was 10,401 in April, which was up 39.7% from the previous year. The share of new diesel-driven passenger cars was 42.5%. In March, new passenger cats registrations fell 15.2% to 9,108.

For the January to April period, new vehicle registrations climbed 0.3% compared to the same period of the previous year. During the period, new vehicle registrations totaled 66,225. Similarly, new passenger cars registrations grew 6.9%.

The most common passenger car makes first registered in the January to April were Volkswagen, Toyota and Skoda, the statistical office said.

Finnish business outlook balance indicator for manufacturing improved in April, a report by the Confederation of Finnish Industries EK showed on Thursday.

The confidence indicator for manufacturing stood at 27 in April, up from 9 in January.

In the latest survey, 32% of respondents in the manufacturing sector believed that the economy would improve in the next six months, while 5% of companies felt that the economy would deteriorate, the EK said.

The construction confidence climbed in April. The construction business outlook indicator stood at 20 in April, up from minus 10 in January. Similarly, the confidence indicator for services improved to 8 in April from minus 1 in January.

The Confederation of Finnish Industries' Business Tendency Survey is published four times a year.

SPAIN

Madrid's Ibex finished the week Friday on 9,046.10, down 3.28% for the day.

Business conditions across the Spanish service sector remained fragile, reflecting the sustained weakness in the recession-hit economy, a survey by Markit Economics said Wednesday.

The headline seasonally adjusted business activity index dipped slightly to 50.9 in April from 51.3 in March, indicating a marginal increase in activity for the second month in a row. An index reading above 50 indicates expansion in the sector, while one below 50 suggests contraction.

New business growth in April was weaker than that seen in March. The overall demand remained weak though demand improved from some clients. Consequently, service providers started to work through outstanding business leading to a fall in backlogs. The latest fall has extended the period of decline to thirty-one month.

Employment continued to decline in April and at the fastest pace in three months. Staffing levels had been declining since March 2008. Moreover, firms intensified job-shedding as a response to weak demand as well as to improve productivity.

Input costs increased to its sharpest level since December 2008 and for the second consecutive month in April, though the rate of inflation was modest. Input price inflation was largely driven by higher fuel costs.

Firms cut charges further as intense competition prevented them from passing on cost increases to clients. Output prices fell markedly, though at the slowest pace since August 2009. Optimism among panelists improved marginally in April, while the level of sentiment was the strongest since last August.

"The Spanish service sector failed to gain momentum moving into the second quarter of 2010, with serious concerns remaining as to whether a broader economic recovery will get underway in the near-term," Markit said.

"Panel members indicate that they are experiencing reductions in profit margins caused by a combination of weak pricing power and rising costs."

The Bank of Spain forecast a 0.4% contraction for the economy this year, with severe corrections in household consumption and high debt accumulated by the private sector weighing down on growth. Economic data for the final quarter of 2009 showed that GDP shrank by 0.1%.

Spanish consumer confidence indicator improved to 78.2 in April from 72.7 in the previous month, a report by the Official Credit Institute showed on Tuesday. A year earlier, the confidence indicator was 61.9.

The index assessment for current situation stood at 50.6 in April, up from 45.7 in the preceding month. Meanwhile, expectations index climbed to 105.8 from 99.7 in March.

Spanish unemployment dropped by 24,188 or 0.58% from the previous month in April, a report from the Labour Ministry showed on Tuesday. Thus, the registered unemployed totaled 4.14 million.

Maravillas Rojo, the secretary general for Employment said, "The decline in unemployment, which occurs first in eight months, which contrasts with the increase by about 40,000 people in the same month of the last two years is a good thing in the context of the current complex situation.."

The male unemployment fell by 1.2% to 2.08 million in April and female unemployment rose by 0.06% to 2.05 million.

PORTUGAL

The PSI General in Lisbon ended the day Friday on 2,327.30, a Friday dip of 2.93%.

Thursday, the Statistics Portugal announced that the industrial turnover increased 16.2% on an annual basis in March, faster than the 9.5% growth in the previous month. A year earlier, industrial turnover was down 18.8%.

On a monthly basis, industrial turnover was up 18.7% in March, after falling 2.7% in February.

In the first quarter, industrial turnover grew 11.9% compared to the same period of the previous year.

Meanwhile, employment, wages and hours worked decreased by 4.0%, and 2.6% and 2.5%, respectively in March compared to the previous year.

Moody's Investors Service has indicated that it may cut Portugal's credit ratings as the country's public finance position has weakened due to widening budget deficits. The news has added to concerns that the Greek debt crisis is spreading.

The rating agency said Wednesday that it has placed Portugal's Aa2 government bond ratings on review for possible downgrade, while the government's Prime-1 short-term rating was affirmed.

In the event of a downgrade, Moody's expects that Portugal's Aa2 ratings would fall by one, or at most two, notches. The review of Portugal's ratings, which had been on negative outlook since October 2009, is expected to be concluded within a three-month time horizon.

Moody's said Friday's rating action reflects the recent deterioration of Portugal's public finances as well as the economy's long-term growth challenges.

"The review for possible downgrade will consider a repositioning of Portugal's ratings to reflect the potentially lasting deterioration in the government's debt metrics," said Anthony Thomas, Vice President-Senior Analyst in Moody's Sovereign Risk Group.

Moody's said the weakening of Portugal's public finance position reflects the failure of successive administrations to consistently limit government budget deficits since Portugal joined the Eurozone at its inception.

"More recently, however, the government's has reiterated its objective to achieve or even surpass the deficit reduction targets published in its latest Stability and Growth Programme," Thomas pointed out. "The well-structured debt profile means that refinancing risks are modest."

"Portugal's growth problem is related more to its low productivity than its high costs per se," he said. "The lack of a devaluation option creates stronger, but not impossible, headwinds for the country's economic recovery."

Moody's believes that increased risk discrimination in the financial markets may raise Portugal's financing costs for some time to come. The rating agency also expects that debt service will remain very affordable in the near to medium term.

Portugal's growth challenges plus large fiscal deficits have led market participants to compare Portugal to Greece.

On April 24, citing amplified fiscal risks, S&P lowered its long-term local and foreign currency sovereign issuer credit ratings on Portugal to A- from A+, while it cut the local and foreign currency short-term ratings to A-2 from A-1. The ratings agency also said that the outlook is negative.

ITALY

Italian stocks declined for a fourth day, extending this week's slump on the FTSE MIB Index, as the biggest monthly increase in US employment in April failed to ease concern that the debt crisis in Greece will spread.

The benchmark FTSE MIB Index declined 637.75, or 3.3%, to 18,846.18. The gauge dropped 13% this week, the worst performance since March 2009.

London Stock Exchange Group Plc, which operates the Milan stock exchange, temporarily suspended trading Friday after a "technical problem."

Eni dropped 3.7% to 15.31 Euros and UniCredit declined 3.3% to 1.63 Euros. Intesa Sanpaolo SpA declined 4% to 2.01 Euros, bringing this week's slump to 20%. Italcementi SpA retreated 7% to 7.17 Euros. Saipem SpA, Europe's biggest provider of oilfield services by market value, fell 4% to 25.57 Euros.

Italy's service sector activity expanded significantly in April, a report published by Markit Economics showed Wednesday.

The Markit/ADACI business activity index came in at 54.5 in April, down from 55.3 in March. The index stayed below the expected level of 56.

Although moderating since March, the pace of output growth signaled by the index was the second-sharpest since October 2007. A reading above 50 suggests expansion in the sector, while a reading below 50 indicates contraction.

Markit said, "The Italian service sector recovery lost momentum in April, but nevertheless remained on course, and shrugged off any ill effects from the cloud of volcanic ash which disrupted travel throughout Northern Europe."

Italy's manufacturing sector increased to the biggest level since May 2007, a report by the Markit Economics said on Monday

The Markit/ADACI purchasing managers index or PMI for manufacturing stood at a seasonally adjusted 54.3 in April, up from 53.7 in the previous month. The latest PMI was the highest level in almost three years. Economists expected a reading of 54.2. A reading above 50 indicates expansion, while one below 50 suggests contraction.

Manufacturing output increased for the seventh consecutive month in April and at the sharpest pace since May 2007. Similarly, new orders growth also climbed to the seventh straight month in April.

Andrew Self, economist at Markit said, "Despite this, the underlying data indicate that the recovery remains fragile. Demand for consumer goods deteriorated, while input price inflation hit a nine-and-a-half year high."

"Further job losses, and continued evidence of spare capacity also highlighted ongoing weaknesses in the sector." he added.

GREECE

The Athex Composite in Athens closed out the trading session and the week Friday on 1,630.47, down for the session 2.86%.

The lawmakers in Greece on Thursday approved the strict austerity measures demanded by the European Union and the International Monetary fund in exchange for a 110 billion Euro emergency bailout loan, ignoring violent public protests outside the parliament building.

The measure was passed in a 172 to 121 vote in the Greek parliament. Three lawmakers from Prime Minister George Papandreou's governing PASOK party abstained from voting on the bill. The three Socialist deputies were later expelled from the ruling party's parliamentary team for abstaining in the vote.

Ahead of the vote, Prime Minister Papandreou told the parliament that the future of Greece depended on their approval of the measure, and reminded lawmakers that the country's "economy, democracy and social cohesion are being put to the test."

"The emergency measures are the condition for us to regain our credibility and win time, lost time. The time to make the big changes that were delayed for years," Papandreou told the parliament. "The situation Friday is simple - either we vote and implement the deal or we condemn the country to bankruptcy."

Soon after the measure was passed in the parliament, Finance Minister George Papaconstantinou congratulated the lawmakers for taking the tough decision of approving cost-cutting measures, which according to him was absolutely necessary to avoid bankruptcy.

"We have done what was necessary, not what was easy," Papaconstantinou said after the vote. "Without these measures, we'd be thrown into the deepest recession this country has ever known."

As lawmakers were voting on the measure, thousands of protesters gathered outside the parliament protesting against the proposed cost-cutting measures. Witnesses said the gathering outside the parliament on Thursday comprised students, teachers, public and private sector workers and pensioners.

Ever since the Greek government readied the package of austerity measures for tabling in the parliament for approval, the country has witnessed violent protests and strikes by public and private sector workers. The unpopular cost-cutting measures has prompted workers' unions to call for a series of industrial actions, along with protest rallies.

Thursday's parliamentary vote came a day after three people were killed in Athens on Wednesday when protesters set fire to a bank during the nationwide general strike. Fire-fighters said the bodies were found inside the burnt out building while another building was also damaged in the fire.

Prior to Wednesday's incident, thousands of Greek public sector workers launched a 48-hour strike on Tuesday in protest against the new austerity measures. Transport workers joined the strike on Wednesday, paralyzing normal life across the country.

The developments followed approval by the European Union and the IMF for an unprecedented $146 billion joint aid package to Greece on Sunday. The approval came after Greece made a formal request for the immediate activation of the crisis loans promised by the EU and IMF to help it tackle ballooning debt and massive deficits.

The joint EU-IMF 110 billion Euro bailout loan would be paid over three years to Greece. While the EU has agreed to provide 80 billion Euros as its share of the bailout package, the rest will come from the IMF.

The EU has indicated that the first part of the loan will be released before 19 May, when Greece is scheduled to make its next debt repayment. The IMF managing director Dominique Strauss-Kahn has said that his agency would likely approve its share of the loan later this week.

In order to gain access to the loan package, the Greek government was asked to bring about wide-ranging austerity measures, including spending cuts and tax increases. The Greek government has already admitted that it can no longer raise money from international markets after borrowing costs reached prohibitive levels.

The new cost-cutting measures include scrapping bonus payments for public sector workers, capping annual holiday bonuses and removing them altogether for higher earners, banning increases in public sector salaries and pensions for at least three years, increasing VAT from 21% to 23%, raising taxes on fuel, alcohol and tobacco by 10% and taxing illegal construction.

Currently, Greece's debt is at a staggering €300-billion, with its deficit rising to more than 12% of national output last year. With the deficit currently estimated to at 13.6% of GDP, Prime Minister George Papandreou's government has been under immense pressure from the European Union to take immediate steps to address the crisis, as all EU member states are required to keep their budget deficits to 3% of GDP or under.

Greece is expected to face a crunch situation later in May, when it faces billions of Euros in debt redemption. However, recent downgrading of Greece's credit ratings by international ratings agencies have made it more difficult and expensive for the Eurozone member-nation to borrow money from the financial markets.

Since the financial crisis erupted, Greece announced at least two sets of austerity measures to help it reduce the budget gap to 2.8% of GDP in 2012 from the current level. The austerity measures came after Prime Minister George Papandreou was left with no option but to adopt cost cutting measures for the third time in as many months to convince European allies and investors that it can bring the region's biggest budget gap under control.

Last Friday, Papandreou told his parliament that the joint bailout package offered by the EU and IMF in exchange for stricter austerity measures were essential for the survival of the country. Insisting that cost-cutting measures were required to bring the country's budget deficit down by 10% by 2013, Papandreou stressed that such measures were essential for preventing the country from collapsing under the burden of massive debts.

The Greek PM also acknowledged that the negotiations with the IMF and EU were tough, but admitted the opposition his government was facing from the Greek public was even tougher. His remarks came as negotiations on the bailout package were progressing between representatives of the EU, IMF and the Greek government in Athens.