WRAPUP 3-Greece battered on markets, denies u-turn on IMF

By Lefteris Papadimas and Renee Maltezou

ATHENS, April 6 (Reuters) - The risk premium on Greek government bonds hit a euro lifetime high on Tuesday as investors doubted Greece could resolve its debt crisis amid fresh scepticism about an EU safety net.

'The crisis is far from over,' Diego Iscaro, economist at Global Insight, said. 'The economy is still contracting, the structural reforms will still need to be implemented, the political situation is still uncertain.'

Returning to markets after a four-day Easter break, investors battered Greece over reports that the debt-laden country was seeking to amend an EU-IMF safety net despite Greek officials denying they intended to renegotiate the deal.

Markets ditched Greek assets, pushing Greek borrowing costs to a new euro life-time high with the premium investors demand to hold 10-year Greek government bonds rather than euro zone benchmark German Bunds rising to as much as 409 basis points.



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The euro lost ground against the dollar and U.S. stocks opened lower on Greek worries.

'Markets are pushing to the limit to see where the threshold for the activation of the emergency plan is,' said Citigroup economist Giada Giani.

Faced with 23 billion euros of maturing debt in April and May, rising spreads make it more difficult for Greece to refinance and increase the chances the EU-IMF aid mechanism will have to be triggered.

EU leaders agreed last month an aid plan that could be used as a last resort to help Greece through bilateral loans and money from the IMF if market financing becomes insufficient and if all euro zone states agree to it.

Analysts said the deal had failed to convince. 'The general picture is that the aid plan is not as solid as it was first perceived by investors,' said UBS strategist Justin Knight.

'There is a variety of questions asked by the market including whether the IMF would request a restructuring of Greek debt and at what level spreads would trigger the activation of the aid mechanism.'



REPORTS SPOOK MARKETS

Market News International quoted unidentified senior Greek government sources as saying Athens wanted to renegotiate the EU aid deal intended to protect Greece from potential default as it struggles to handle a 300 billion euro ($402.3 billion) debt in a crisis that has shaken the euro.

The report had said Athens wanted to bypass a potential contribution from the International Monetary Fund because it was concerned that it would impose tough conditions.

But Finance Minister George Papaconstantinou rejected the Market News International report.

'Greece never took any action to change the terms of the recent agreement at the European Council on the support mechanism,' he said in a statement late in the day.

Other negative news about Greece also weighed, as shares in the country's banks fell sharply.

The European Union executive Commission and European Central Bank had no comment on the report on Tuesday. The IMF said on Tuesday it will begin a staff technical mission to Greece on Wednesday to look at fiscal issues.

The market pounding was a far cry from comments by Greek Prime Minister George Papandreou over the weekend that the worst of the crisis was over, with analysts saying the latest jump in borrowing costs would make it even harder for Greece to cope.

'With something close to 20 billion euros of debt needing to be refinanced by the end of May, the latest rise in yields is a major blow to hopes that Greece might yet manage to muddle through on its own,' said Jonathan Loynes, at Capital Economics.

'Needless to say, none of this is good news for the euro either.'



BORROWING NEEDS

Meanwhile the Financial Times reported on Tuesday Greece was seeking $5 billion to $10 billion from U.S. investors to help cover its May borrowing needs of about 10 billion euros ($13.5 billion) to roll over maturing debt and meet interest payments.

The head of Greece's PDMA debt agency told Reuters last week Athens would issue a global U.S. dollar-denominated bond in late April or early May. He did not say how much it would seek to raise but said a roadshow would be organised after April 20.

Investor uncertainty also grew following a report in Britain's Daily Telegraph saying wealthy Greeks and companies were looking to move their funds outside the country.

It said big depositors had been clamouring to move cash to international banks such as HSBC or France's Societe Generale, which run large branches in Greece.

The report appeared to contradict recent data from the European Central Bank and comments to Reuters by analysts and Greek banking sources, who said there was no clear evidence of a major, extended deposit outflow from Greek banks.

The 10-year Greek/German government bond yield spread widened from 349 bps late on Thursday to as much as 409 basis points, over a previous January euro life-time high of 405 basis points, and Greek bank stocks fell over 4.5 percent.

Five-year credit default swaps (CDS) -- the price of insuring Greek debt -- rose to 400,000 euros to protect 10 million euros of government bonds, from 344,000 on April 5, according to Markit data.

Greece crept up the table of sovereigns whose debt is the costliest to insure, credit default swap monitor CDS DataVision said on Tuesday.

U.S. stocks fell at the open on Tuesday on worries over a report Greece wants to renegotiate a financial aid package and on the prospect of rising interest rates.

European markets were shut for Easter on Friday and Monday.



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(Additional reporting by George Georgiopoulos and Harry Papachristou in Athens, George Matlock in London, Lesley Wroughton in Washington and Kim Coghill & Jan Dahinten in Singapore; Writing by Ingrid Melander; Editing by Stephen Nisbet) ($1=.7457 Euro) Keywords: EUROZONE GREECE/ ([e-mail] ; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.