Renewed concerns about the ability of Greece to pay down its debts sent the euro lower, near to its biggest one-day fall against the dollar in three weeks. The euro traded 0.7% lower at $1.35, after Greece called on the European Union and the International Monetary Fund to start talks about the proposed $35bn (£22.5bn) bailout package. The three parties will sit and negotiate for the next two weeks, before Greece takes a final decision on whether to draw on the loans.
The premium that investors pay to buy Greece's 10-year bonds over German bunds rose by 20 basis points to 426bps, the widest since Monday.
In Britain, bond investors cheered a Daily Telegraph election poll which gave the Conservatives a "convincing election victory".
Investors bought gilts on hopes that David Cameron's party would cut the country's ballooning deficit quicker than a Labour government, if they win the forthcoming 6 May election.
"Only a strong Conservative majority is likely to deliver large and early fiscal tightening," said Citigroup in a note to investors. "And in the absence of such a result the MPC [the Bank of England's monetary policy committee] may be forced to raise rates quicker than many expect to head off the incipient inflation threat."
But gilts ended up paring gains after strong US data was released. The yield on 10-year bonds rose one basis point to 4.03%, more than the 3.13% that Germany has to pay to lure investors.
Yields could push as high as 5% if Gordon Brown wins another term, or if he is forced into an alliance with the Lib Dems, Citigroup said. "Gilt yields look vulnerable to further upward pressure on both fiscal and monetary concerns under any scenario other than a strong Conservative majority," the bank said in a note to investors.
Equity markets were practically unchanged, with the FTSE 100 up 28 points at 5825.
Cruise operator Carnival rose 2% to £26.94 after Morgan Stanley lifted its target price to £32, from £27. "We see tremendous potential in Europe, where the source market will generate nearly half of Carnival's profit this year and demand actually grew 6% last year," the broker said.
Dana Petroleum shares rose after the energy exploration company said it had made a "significant" gas discovery in the North Sea. The stock added 39p to £13.08. Banks also gained on the back of strong profits from US investment bank JP Morgan . HSBC rose 2.9% to 712p, while Barclays gained 2.5% to 383p.
elena.moya@guardian.co.uk
