Markets in cautious mode as Spain warns on deficit

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By PAN PYLAS, Associated Press

LONDON (AP) — Markets ended the week on a cautious note Friday as Spain warned that its budget deficit this year would be higher than previously thought and Greece was told it had to clear another hurdle before getting its hands on crucial bailout money.

In Brussels, 25 European Union countries signed a new treaty designed to prevent a repeat of the debt crisis. In the years to come it may be seen as a momentous moment in the history of European economic and monetary union, but its initial impact was diluted by the announcement from Spain that its budget deficit this year will be worse than thought.

Spain's government deficit will reach 5.8 percent of economic output this year, Prime Minister Mariano Rajoy said after the summit in Brussels. That is much higher than the 4.4 percent Madrid had promised to the other states in the 27-nation bloc.

Nick Bennenbroek, an analyst at Wells Fargo Bank, said the Spanish deficit prediction was "hurting sentiment at the margin."

Renewed concerns over Greece's second bailout lingered, too, after finance ministers from the 16 other countries that use the euro said on Thursday they wanted more evidence from Athens that it would push through austerity and reform plans.

"Ministers want to see that Greece is making real progress on reforms, but this international game of chicken is doing nothing for risk appetite," said Chris Beauchamp, market analyst at IG Index.

And confirmation that overnight deposits at the European Central Bank hit a record high of euro777 billion ($1.03 billion) on Thursday did little to boost sentiment in the markets, on a day largely devoid of meaningful economic and corporate news.

In Europe, the FTSE 100 index of leading British shares was down 0.3 percent at 5,911, while Germany's DAX fell 0.3 percent to 6,921. The CAC-40 in France was slightly up at 3,501.

The euro was the predominant mover, losing almost 1 percent of its value against the dollar to trade at $1.3204, its lowest level since Feb 21.

In the U.S., the Dow Jones industrial average was down 0.24 percent at 12,949, while the broader Standard & Poor's 500 index fell 0.3 percent to 1,369.

Most of the world's leading indexes are back at levels they were trading at before last summer's massive sell-off. U.S. markets are actually trading at their highest levels since before the collapse of U.S. investment bank Lehman Brothers in September 2008. The tech-heavy Nasdaq index is doing even better, having breached the 3,000 level Wednesday for the first time since 2001.

Much of the credit for that has been the seeming easing in Europe's debt crisis.

Another long-term offering of super-cheap loans to Europe's banks' from the European Central Bank on Wednesday has helped relieve those concerns further. The figures showing the rise in the amount deposited overnight at the ECB the following day was more likely a side-effect of the euro530 billion ($706 billion) three-year loans that banks took on board — after the previous offering in December, the amount of deposits spiked up sharply before falling back to more normal levels.

Earlier in Asia, Japan's Nikkei 225 index rose 0.7 percent to finish at 9,777.03, its highest close in seven months.

Hong Kong's Hang Seng added 0.8 percent to 21,562.26, and South Korea's Kospi added 0.2 percent to 2,034.63.

Mainland Chinese shares rose, with the benchmark Shanghai Composite Index adding 1.4 percent to 2,460.69. The Shenzhen Composite Index climbed 2.1 percent to 980.77. Benchmarks in Australia, Singapore and Taiwan also rose.

Oil prices fell back modestly after Saudi Arabia denied an Iranian media report of an explosion at a Saudi pipeline. Benchmark oil for April delivery was down $2.56 to $106.29 in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this report.

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