Sharemarkets around the world remained in turmoil yesterday after Greece failed to form a government, setting the stage for a June election that could raise the risk of Athens abandoning the euro and deepening the euro zone's debt crisis.
The euro zone narrowly missed falling into recession in the first quarter of the year by registering 0% growth, although Greece's recession deepened in the same period.
Anger against austerity has spread across Europe and Greek police detained about 10 anti-austerity activists from France and other European countries who had slept overnight on the main Athens square in front of the Greek Parliament.
Financial markets have been rattled by the prospect that a victory next month by Greek leftists opposed to austerity measures - conditional to an international bail-out - could not only put Greece's euro membership at stake but also damage the euro zone's fiscal consolidation efforts.
A Greek exit from the euro might be manageable, Reuters reported. But a far more significant issue was the flow-on impact on unpopular restructuring policies agreed by other struggling economies, such as Italy and Spain.
European shares hit their lowest closing level since the start of 2012 yesterday. The benchmark Athens index plunged nearly 4% to a fresh 20-year low and ongoing concerns over Spanish banks knocked Spain's IBEX index down to its lowest level since late 2003.
The Australian dollar traded in a narrow range after falling sharply overnight.
Commonwealth Bank currency strategist Joseph Capurso said the Australian dollar fell after talks between Greece's political parties collapsed.
"Uncertainty is bad for the Australian dollar and that's why it's been trending lower."
Mr Capurso said the negative sentiment over events in Greece meant the market ignored better-than-expected Australian wage-price data and the currency was likely to continue to fall over the coming days.
The New Zealand currency also fell to a five-month low of 76.82USc during the day.
The dollar continued its downward slide after dairy products fell 6.4% at Fonterra's GlobalDairyTrade auction. The average sale price has now shed 41% in the past 12 months.
The decline reflects a broader slide in commodity prices as traders factor in weaker demand from China and uncertainty in Europe that has helped drive up the US dollar, and increased supply.
Greek contagion concerns pushed Italian 10-year government bond yields above 6% for the first time in two and a-half months. Italy tracked Spain higher as Spanish bond yields stayed over 6%.
