Post date: May 08, 2012 2:4:39 PM
Financial markets reacted cautiously to the weekend election results from France and Greece that threatens to unravel the progress already made in the euro zone.
EUROPE-MARKETS - Europe's investors sold shares for a second day unnerved by the political stalemate in Greece and the threat of a Franco-German split over policies to tackle the debt crisis
But news that Spain was prepared to use public funds to help its troubled banks soothed a little.
There was less volatility than Monday - the FTSEurofirst 300 was down around half a percent and the Euro STOXX 50 fell almost one percent.
The euro managed to stay above the previous day's three-month low, hovering just above the $1.30 level.
David Jones from IG Markets in London says relations between France and Germany are key.
CHIEF MARKET STRATEGIST DAVID JONES, SAYING:
"The absolute worst thing would be if they decided to completely - the new french government - overturn the plans for austerity cuts and look for ways to spend their way out of this recession and the crisis they are in, I think that would be the worst thing. Whether that is the worst thing for the country remains to be seen but the market likes the idea of austerity cuts and if we saw 180 degree turn on policy there, I think that would be quite a shock for markets and we could see a lot of volatility"
In Germany trading was slightly delayed due to technical problems.
It lost around 0.3 percent on opening.
But trader Robert Halver said he was confident Merkel and Hollande would tackle the problems.
TRADER AT BAADER BANK, ROBERT HALVER, SAYING:
"The fiscal pact will definitely remain the way it is but it will be adjusted so that a new growth pact will ensure that ways are found to see what more can be done to promote growth. If Mrs. Merkel makes clear that reforms are important, they will meet somewhere in the middle, between budget discipline and new debt."
Commodities were also hit by the political uncertainty in the euro zone.
Gold - normally seen as a safe haven, fell for a second day.
Investors will now be watching Greece closely - to see if it's hard-fought bailout deal unravels
And France - to see how its new president-elect Francois Hollonde plans to tackle the debt crisis and create growth.
Hayley Platt, Reuters.