6.44am: OK - we're moving over to a new live blog for today's action.

It's here - Market turmoil - live coverage - click across now to see the latest action.

Thanks for reading and commenting. Graeme

6.27am: The pound's still falling - just hit $1.4641.

6.23am: The pound just hit a 12-month low against the dollar at $1.4670, as traders quickly digest those forecasts of heavy selling on the European exchanges. You have to go back to the end of April 2009 to find a time when sterling was weaker against the greenback.

There have also been some interesting moves against the euro, which has been steadily weakened by the Greek crisis. The pound hit a high of €1.2735 (that's 84.4p) shortly after 4am, but has been slipping since. Currently €1.2679 (86.2p)

6.05am: We're just getting the latest projections from the City forecasters, and they predict that shares are going to tumble again when trading begins at 8am.

The FTSE 100 is being called down up to 2.1% at the start. That's a fall of over 100 points, following yesterday's 80-point tumble.

The picture is just as grim across Europe - with Germany's DAX tipped to fall 2.3% and the French CAC down a whopping 2.9%. That can't be blamed on the British electorate, of course - it's a reflection of the heavy losses on Wall Street overnight, and the ongoing turmoil in Greece.

5.53am: Morning all. Graeme Wearden here. And what a morning - as I type the Conservative Party are on track to claim the most seats in a hung parliament, but with 120 constituencies still to declare the future of British politics is skin-tinglingly unclear. As Patrick Wintour has written - Gordon Brown and David Cameron are locked in a constitutional standoff.

So let's run around the state of the financial markets.

Sterling is DOWN, at $1.4754 against the dollar. It hit $1.4731 around 3.15am, when the glut of declarations started coming in.

UK government bonds are also coming under heavy pressure. Gilt futures soared overnight, pushing up the cost of borrowing.

4.22am: Markets are braced for a rocky start to trading today as overnight confusion in the polls comes amid continued heavy selling on international markets due to the Greek debt crisis. Prices quoted by IG Index suggest the FTSE-100 could fall over a 100 points after a volatile night of trading in London follows panicked selling late yesterday in New York. Investors are struggling to digest the implications of this tightly-fought general election, but for the moment, the fight is overshadowed by broader worries about whether the next phase of the credit crunch is underway. I'm going to head off now to get some sleep, but Graeme Wearden will be taking over from me shortly to chart what promises to be an interesting morning.

Dealing room reaction: Elena Moya

3.23am: OK, so now the City reckons it's going to be a hung parliament. So much for all that collective wisdom (or not). The bankers are as confused as the rest of the country. Elena Moya, our tireless reporter in the Square Mile, reports:

After a short euphoria from those who believed a Tory victory was coming - despite the hung parliament announced by the exit polls- sentiment turned to reflect what the market has been discounting for weeks: there's no clear winner. "The market is resigning itself to a hung parliament - we would need a massive surprise not to see hung parliament, and we haven't had one yet," said David Jones, Chief Market Strategist at IG Index in London.

"Current aggregate swing on results in is just above 4%, which is not enough for a Conservative majority," addded Mike Amey, Pimco's man in London. "As a result the Gilt market is coming down a little. The gilt market had rallied by just over 1 point, or 1% at the open. That is now more like half a point. Similarly the Pound is a touch lower (1.4840 from 1.49). The markets are starting to think seriously about a hung parliament."

2.53am: Glancing away from this gripping election race for a second, the markets have just opened in Hong Kong and it looks like the panic that hit Europe and the US yesterday has rippled all around the world. HSBC shares have opened down 5.1%. Whatever the result of this election, I think we should brace for a rocky Friday on the markets.

2.25am: The markets have gone quiet as everyone tries to work out what all these contradictory results add up to. The pound and gilt markets remain firm, but the prospect of a hung parliament is looming again and I woudn't be surprised to see prices begin to fall once more. This really has been a roller-coaster night.

Dealing room reaction: Elena Moya

1.33am: Definite signs of a rally in the UK bond markets, but our credit market expert Elena Moya (who is in the London dealing room of the world's biggest bond investor, Pimco) cautions that this is not all about the Tories.

This is a reaction to a rally in US treasury bills, which rallied after a trading error sent equities diving and investors seeked refuge in the - in principle - safer world of bonds. "The gilt reaction is very similar to the German bonds, so it s a catch up with the US market, it's not saying the results are good or bad, just saying they don't know," said Mike Amey, head of UK fixed income at Pimco, the world's biggest bond investor. Trading at the London Financial Futures Exchange, Liffe, was about 1000 contracts in the first 15 minutes since the market opened at 1am. "It's very small, if something big had happened, there would be 15,000 contracts traded," Amey said. He's covering the markets alone in London, liaising with his colleagues at the much bigger trading room in southern California. Communication is through Bloomberg screens, but there's little chance the firm will jump on UK gilts, after founder Bill Gross said they were resting on a bed of nitroglycerine.

For those interested in the detail, gilt futures are up £117.7 [to buy £100 worth of gilts], from £117.3, pushing down 10 year gilt yields down to 3.8%, from 3.9%. This means the cost of borrowing money is falling for the UK government.

1.09am: Government bond markets rallying judging from early prices. Those two Tory gains likely to be reassuring investors about majority government.

IG Index say June Long Gilts now open and up around 0.6% - driven by New York uncertainty and City feeling it will get a definite winner tonight.

1.00am: Trading in the City has now started. We're getting prices with a 10 minute delay unfortunately, but I'll give you a flavour of the action once the seats start coming in. We've been getting currency trades through the night already (sterling now back up to $1.49) but the opening of the London International Financial Futures and Options Exchange (Liffe), will give the first indication of how investors think the election result will effect interest rates, government bonds and the FTSE-100.

Meanwhile, our reporter Elena Moya has filed this after speaking to traders in the US:

Investors are betting sterling volatility will continue to the weekend, until clear results come out. "This won't be figured out quicky, the pound will be trading all over the map over the next two sessions," said Dave Leaver, a senior trader at forex.com in New York. Then, the pound will be a good buying opportunity, he said. "Sooner or later, problems in Europe will be a lot worse than the UK, so the pound will appear as a safe heaven. Britain and the US have taken good steps to handle the crisis. The ball will be in the European central bank's court, and we don't see what can be done: a debt problem is being sorted with more debt, one country is worse than the other. It s a complete mess.". I would have never thought that I would ever report a trader saying that the currency of a country with debts of more than 10% of the size of its economy would appear as a safe heaven. It's all relative, Einstein already said.

Currency markets - Sterling

12.34am: The pound has recovered most of its early losses after the exit polls. Now trading at $1.48. This feels like the calm before the storm though. Everyone wants to see some results from marginal seats before making up their minds. Trading on Liffe begins in half an hour, which should give us some more sense of what investors think will happen.

Dealing room reaction: Elena Moya

Our reporter in the City, Elena Moya, says the mood is turning (predictably) toward the Tories in London's dealing rooms.

Armed with computer and television screens, investors are convinced the exit poll is wrong and the tories will win a majority -the City's preferred outcome, given the conservatives' outright commitment to budget cuts. IG Index has been handling an investor bet every 10 or 15 seconds since the exit poll came out at 10pm.

She's in a cab now heading for the dealing room at Pimco, the world's largest bond trader, which famously warned the UK was resting on a "bed of nitrogylcerine". Here's her recent interview with the boss of Pimco warning 'clients don't pay me to feel sorry'.

Live blog: Nils Pratley

11.40pm: My colleague Nils Pratley points out that the City is digesting these big swings against Labour in Sunderland. Spread betting sites have Tory seats at 330-335, enough for a small overall majority.

Meanwhile, the pound has recovered some of its earlier losses.

Dealing room reaction: Elena Moya

11.18pm: Our reporter Elena Moya is at one of the many City dealing rooms to have opened especially for the election night and has just filed this dispatch:

At 10pm, as the exit poll came out, the screens of spread betting company IG Index were flashing orders from some of its more than 50,000 clients worldwide.

In the usually quiet headquarters on Blackfriars Rd., about 15 staff monitored the company's risk exposure, as clients mostly placed bets against sterling, and on a rally of the FTSE-100 Index.

"A hung parliament is bad for the pound, but investors may be speculating that the fall of the FTSE might have been overdone -FTSE companies get much of their revenues from overseas, so a hung parliament here might not have such big impact," said David Jones, Chief Markets Strategist at IG Index.

Before the exit poll was announced, investors bet that the FTSE would fall 150 points from its closing price on Thursday. The bet moved to a smaller drop of 120 points by 10.20pm. The pound lost 200 points against the dollar, from $1.49, from $1.47, after the exit poll. "In 20 minutes, 200 points is quite a big move," Jones said. It was his first day in the office at night, he said, adding that he planned to work through the night and until 2 pm on Friday.

Thursday was IG Index' busiest day in the company's 30-year history, with 420,000 transactions from around the world, or about five trades per second. The Greek crisis, a mis-placed trade in the US, and the uncertain outcome of the UK election, pushed volatility, the favorite element of punters. "It's great for our clients," Jones said. "It's quite exciting, for a change. Markets had been open in the past, but the market reaction was negligible because the result was expected."

10.41pm: Barclays Capital has just released its snap verdict on the exit poll data, of which they are rightly sceptical. The main point is that a minority Tory government is actually a big worry for the City, rather contrary to Ken Clarke's dire warnings before the election.

The emergence of a minority government would leave some residual uncertainty about the outlook for economic policy as the passage of any necessary legislation may be more difficult to navigate than if the government had an outright majority. As such, this outcome seems likely to lead to some volatility in asset prices unless and until the ability of the new government to operate effectively is established.

10.30pm: Our reporter Elena Moya is on a trading floor in the City following events this evening. She says investors are still most concerned about wider market turmoil:

The exit poll suggests that it will be a hung parliament with no party having a strong mandate. If this turns out to be correct then the UK market might be slightly volatile tomorrow. However the fact of the matter is that in the capital market, the UK election is being totally overshadowed by events in the European government bond market

Meanwile, others are picking up on the sliding currency markets we mentioned earlier.

Telegraph economics columnist Ed Conway tweets: "Pound down against euro - big sign of market concern. near 86p a euro. took traders a sec to realise what polls mean. now they're worried"

Currency markets - Sterling

10.24pm: Sterling continuing to slide, now down exactly a cent against the dollar having fallen three cents earlier in the day. The fear seems to be that a result that mirrored the exit poll would make it hard even for a coalition government to be formed.

Currency markets - Sterling

10.17pm: Sterling has fallen almost half a cent against the dollar since exit poll data came out at 10pm pointing to a hung parliament. The pound has already had a battering today after the Greek debt crisis raised fears of contagion. Prices quoted by spread-betting agency IG Index are also pointing to a 123 point fall in the FTSE 100 index on Friday morning.

"With Conservatives 19 seats short, that's getting close to the most awkward result you can get," said David Lea, western europe analyst at Control Risks.

Dow Jones at 3.20pm US eastern daily time Photograph: Graphic

8.59pm: Here is a graphic of the frightening plunge on the Dow Jones earlier this evening. It looks like the panic may have been triggered by one or more rogue trades. CNBC is reporting that one of the big banks may have been responsible but the New York Stock Exchange is investigating. Either way, the Dow has just closed down 354 points, or more than 3%, with almost all of the gains this year now reversed. Rogue trades are not what we need on days like this.

8.46pm: New York may be calming down (a bit) but this could be a long night because traders in London are coming in especially to trade through the results of the UK election. The London International Financial Futures and Options Exchange is opening at 1am to allow trading in derivatives that track UK interest rates and the FTSE 100 index.

Given what a rollercoaster day we have already had on international markets, it goes without saying that traders will be watching the results closely to see what it may mean for the UK economy. Putting party allegiances to one side (and most of the City would love to see a Tory win), the main issue will be stability. If the new government looks like it will command a clear majority or can form a stable coalition, things may calm down. A hung parliament may add to the international jitters. They could all fall asleep, of course.

If you need reminind how volatile things are have a look at this piece from our banking correspondent Jill Treanor about how the crisis in Greece is already hitting British banks.

8.26pm: Dan Roberts here taking over the live blog to see us through what could be an interesting evening on the international markets. Following the shock 900 point plunge in the Dow, the New York Stock Exchange is looking into the trading data to see whether a rogue trade may have sparked the panic selling. The Dow Jones index has recovered to trade 'just' 4.5% down, but it's undeniable that markets are extremely jittery right now. It feels, in fact, just like it did during the banking crisis.

8.20pm: Some of the City's dealing rooms will be opening up very early in the morning to trade on the result of the general election. With Wall Street seeming to have a major case of the jitters, by far the worst outcome - for the markets - would be a hung parliament. If there is no clear winner, expect a rout in London tomorrow.

The foreign exchange markets are, of course, open all night, with the centre of trading switching during the day. The pound has taken a battering today, while the euro has continued its slide against the dollar.

It's going to get worse, according to BNP Paribas. The bank expects the euro to be at parity - ie worth exactlty the same as - the dollar by the first quarter of NEXT YEAR.

The euro hit a 14 month low against the greenback - dropping under $1.26 - but parity still suggests a major revision. Until today, BNP had been forecasting the euro at $1.22. In its early days as a currency, of course, the euro was at around 80cents so it is not unchartered territory (as Larry Elliott, our economics editor, pointed out to me as he wandered past my desk). But since then the eurozone has expanded and - its supporters would maintain - strengthened as an economic bloc. Cobblers, its detractors would of course point out, the problems in Greece highlight the fundamental flaw in having monetary union without fiscal/political union.

Anyway, back to the BNP note. This from Reuters:

"European bond markets are no longer a homogenous entity, which has reduced their attractiveness to foreign investors," strategists at BNP wrote in a note. "The inner (European Monetary Union) bond spread divergence and its impact on capital flows has been more severe than had been initially anticipated." BNP said over the past year the net inflow into European sovereign debt markets has "collapsed." Official accounts, which had been steady euro buyers and bond investors for years, have "disappeared." "While we have had one of the most euro bearish forecasts in the market, these previous projections now appear too moderate given current developments," the firm said. "Now that the fiscal option has been used without much success it will be down to the European Central Bank to come to the rescue of the euro," BNP said. "But, ECB President (Jean-Claude) Trichet did not leave the impression that this rescue comes at speed."

8.01pm: Wall Street has gone into meltdown. At one point in the last half an hour the index of America's leading stocks - the DJIA - was down more than 900 points. That's a 10% fall.

The vote in favour of Greece's austerity package has done absolutely nothing to convince traders on the other side of the Atlantic that Europe's heavily indebted economies are going to be able to pull themselves out of the mire.

At 8PM the DJIA is down 530 points, which still counts as a rout. Investors are as jittery as they were in the days following the collapse of Lehman Brothers.

7.45pm: Stephen Moss, our man on the ground in Athens, has sent a couple of choice missives via micro-blogging site Twitter about the situation in Athens, where protestors appear to be getting increasingly agitated.

A few minutes ago he tweeted:

Police breaking up athens parl demo with gas and advance from several sides

Obviously things appear to have gone rather downhill since then. While there has not yet been another flare-up quite as violent as the scenes witnessed on Wednesday, which resulted in three deaths in an Athens bank, local residents are apparently taking few chances. Even hoteliers are apparently scared, according to Stephen's latest tweet.

Tried to take refuge in posh hotel but the concierge closed the shutters on me

Some bastions of capitalism, however, will stand regardless of what the mob might be able to throw at them. Although Stephen does question the wiseness of keeping one particular outpost of American colonialism open during such times of unrest.

Is it really wise for mcdonalds in syntagma square to be open?



Almost certainly not judging by the pictures now running on the television. There appear to be running battles going on between protesters and police.

7.20pm: Despite the success of George Papandreou in getting his package of austerity measure through parliament there is still a papable sense of panic in the financial markets about the state of the Greek economy and the 'contagion' spreading to other eurozone countries.

The recent violence on the streets of Athens - and the protestors have been out in force again today and are currently massing in the streets surrounding the parliament building - has reminded investors, especially on the other side of the Atlantic, that voting in a law is not the same as implementing it.

The vote took place against a backdrop of angry Greeks outside shouting "Take to the streets! Say 'No' to the measures!" and it looks as though there are likely to be further mass demonstrations tonight.

Financial markets are far from convinced that the vote - which paves the way for the eurozone/IMF €110bn bailout - marks the beginning of the recovery for Greece.

On Wall Street the Dow Jones is down almost 250 points.

Earlier, European stock markets closed lower, with banking stocks taking a pasting.

And of course it should not be forgotten that at a time when the financial markets are desperate for proof that decisive political action can be taken to deal with Europe's heavily indebted countries the last thing any economy needs is political indecision.

What a great time to hold a general election that could result in a hung partliament..!

On that point, some dealing rooms will be opening up very early tomorrow morning (and I mean early, 1AM in some cases) in order to react to the election results as they come in. Foreign exchange trading, of course, carries on all night. The pound has already taken a battering today, down 1% at under $1.50.

6.40pm: To a back drop of chanting by demonstrators outside the parliament building, Greece's politicians have approved prime minister George Papandreou's austerity package, paving the way for a €110bn bailout by the eurozone countries and the IMF.

The package of measures, which opposition leader Andonis Samaras characterised as a dose of medicine which "is in danger of killing the patient", includes the overhaul of Greece's pensions system, tax increases and the abolition of the 13th and 14th monthly wages paid annually to public sector workers on low salaries.

Its passage was not smooth, with leaders on both sides of the parliament having to chuck out dissenters.

"We have done what was necessary, not what was easy," Finance Minister George Papaconstantinou said after the vote. "Without these measures, we'd be thrown into the deepest recession this country has ever known."

Elsewhere on the site, our banking expert Jill Treanor has explored the potential impact of the crisis on the European banking sector.

6.18pm: The Greek government has approved the austerity bill. More will follow on that in a moment.

But first, here's some more on the earlier preliminary vote in the Greek parliament. The bill passed its first hurdle with a vote of 172 in favour and 121 against.

The €110bn bailout from the euroxome/IMF is contingent on the passing of the so-called austerity measures, which have lead to violent protests in the streets of Athens.

With such a contentious piece of legislation its passage was never going to be smooth, and it has not been. Papandreou was forced to expel three of his deputies who abstained from voting (he still has 157 of the 300 seats in the Greek parliament which still gives him the sort of comfortable majority that David Cameron is praying he will have tomorrow)

His Conservative opposite number Andonis Samaras also had to remove one of his supporters - former Foreign Minister Dora Bakoyiannis - after he voted in favor of the bill. The main Greek opposition party now has 90 seats.

Samaras blated the government saying "The dose of the medicine you are administering is in danger of killing the patient" and claiming Papandreou had caused "a social explosion."

Papandreou was suitably frank about the choice facing deputies in the parliament:

"Today things are simple. Either we vote and implement the deal, or we condemn Greece to bankruptcy," he said. "Some people want that, and are speculating (on it), and hope that it will happen... We, I, will not allow that. We will not allow speculation against our country, and bankruptcy to happen."

5.33pm: Europe's stock markets have ended on a 10-week closing low on fears about the contagion spreading from Greece. From Nick Fletcher's closing market forces blog



Overall it was another day of volatile trading, with the FTSE 100 finishing down 80.94 points at 5260.99 after hitting a low of 5251 and a high of 5371. The index has dropped around 360 points since last Friday morning.

Ratings agencies Fitch and Moody's, meanwhile, are both keeping their stable outlook on Italy despite the Italian government increasing its forecast for the ratio of its debt to GDP. Cheekily the rating agencies have stated that the revision merely brings the government's projections into line with their own. Who needs politicians and their economists when you have unelected ratings agencies? Perhaps we should hand over the reins of power now (actually, I think this crisis may show we already have).

Incidentally, there's an excellent discussion of how spreads in the credit default swap market (that's bets on which banks will be hardest hit by the sovereign debt crisis) have now widened beyond the last three spikes: the collapse of Bear Stearns, Lehman Brothers and March last year, behind the FT paywall on FT Alphaville but you can sneak in through Google - just search for "CDS Report: It's getting worse" and click on news.

5.05pm: The Greek parliament has voted to approve Papandreou's austerity measures, needed in order to get the €110bn EU/IMF bail-out cash. But the markets are not going to break out the bunting just yet.

This first vote was a preliminary non-binding vote. In order for the package, which has lead to such violent protests in recent days, to actually become law it must pass a second vote later today.

As investors look for safe havens among all this talk of contagion and a sovereign debt crisis, gold has gained almost 2%, rising to a five month high of $1,195.35 an ounze.

Silver prices are slightly weaker, but platinum is also soaring, quoted at over $1659 an ounce, up more than 30 cents.

Live blog - Portugal flag

4.56pm: Things are tough for Portugal as the P in PIGS looks to raise anywhere between €300m and €1bn next week. Spreads on its existing 10 year bonds have ballooned today on fears that the country will be the next to fall into the sovereign debt crisis hole that has enveloped Greece.

The premium demanded by investors in Portugese bonds, compared with German bonds - which investors see as a far safer bet - has grown to 349 basis points compared with 307 basis points on Wednesday. That means it costs Portugal 3.49 percentage points MORE than Germany to raise funds.

Portugal has roughly €5.9bn worth of bonds falling due this month and while officials maintain that the country will not have any problems with these redemptions, the situation has not been helped by comments earlier from ECB president Jean-Claude Trichet that the bank's monthly rate setting meeting did not include any discussion of the bank buying government bonds.

In Portugal the PSI20 has closed down 2%.

In Spain the IBEX 35 is down 2.2%.

In Italy the FTSE MIB has closed down 4.3%

The euro is down 1% against the dollar today taking its losses against the greenback to 4.8% for the week. So far the euro has lost 11% in 2010 (thanks to Reuters for the figures).

The FTSE 100, meanwhile, closed down 80.94 points at 5260.99 points, further unsettled by an 80 point slide on the DJIA in New York.

4.02pm: The markets are wobbling again, and sterling is down below $1.50 as new fears spread that Greece's bailout may not be a done deal after all.

The FTSE 100 has turned negative again, down 63 points at 5279. The catalyst appears to be a statement from the German opposition leader saying he will oppose the bill that is going through the German parliament.

Rick Wray will be bringing you more details....

(Cheers Graeme, now go and get some sleep. I hear you'll be back in the office at some unGodly hour to cover the market's reaction to the election)

Rick here: as the denizens of Westminster canvas the electrorate this side of the Channel, in Germany there is some political grandstanding going on in parliament. Chancellor Angela Merkel does not need the support of opposition parties to get the country's involvement in the Greek bailout into law, it would help to soothe an increasingly disgruntled public.

But the main German opposition party - the SPD - appears to have failed to reach an agreement with merkel on a joint resolution that was to be attached to the bill approving the deal for Greece.

Investor disquiet about the Greek situation - and potential contagion into other countries - is playing havoc with the markets.

Financial data from Thomson Reuters

Through the wonders of technology (and the office's Thomson Reuters screen) here's the day's sterling/dollar trading chart.

3.07pm: Time to look back at Greece. Prime minister George Papandreou has given a passionate speech to parliament as it continues to debate the €110bn bailout - and the austerity measures the country must adopt.

Papandreou told MPs that there was no time to lose:

"This is the time for change. There is not a single day or hour to lose.

I take responsibility as prime minister for making the decisions I believe are necessary for my country and its citizens ... I don't care if this will be the only time I serve as

prime minister."

Papandreou also touched on yesterday's tragic scenes:

Neither stones, nor violence will remove us from (EU) supervision. Instead they will throw us into even deeper crisis and disrepute.

2.35pm: Trichet's work is done, and the euro has clambered back to €1.2726. The top line from this press conference seems to be the ECB's refusal to indulge in quantitative easing. Will the markets see that as a sign of confidence, or will it disappoint those who were hoping for firmer action to prevent the Athens crisis spreading?

Gary Jenkins of Evolution doesn't sound too convinced:

Well Mr. Trichet is going for the "crisis, what crisis?" approach in the Q&A session of the ECB meeting. I am not convinced that this denial of the problems facing European sovereigns is healthy. It is also difficult to believe that they didnt even discuss the possibility of buying government bonds, but that is what Mr Trichet claimed. However, if recent track record is anything to go by, that doesn't mean that they won't be buying government bonds pretty soon. I worry that Mr. Trichets performance today could well lead to a further sell off in government bonds, certainly the Euro is already suffering.

2.25pm: Wouldn't we be better without the euro, asks one journalist. Trichet looks a bit shocked at this kind of talk.

I don't think there is any such sentiment in the Governing Council. We, and the presidents and prime ministers I speak to, think that belonging to the euro has brought about an enormous amount of advantages.

But it also calls for responsible attitudes.

2.19pm: The euro just fell through $1.27. We're hearing that the bonds issued by weaker members of the eurozone are also coming under pressure following Trichet's insistance that quantitative easing was not discussed by the ECB. Geman Bunds look safer than ever.

2.10pm: Does Trichet think there should be a European ratings agency? Some people have been calling for this in recent days, after America's Standard & Poor's agency sparked panic by cutting its ratings on Greece, Portugal and Spain.

Trichet sits on the fence (something not tolerated at this UK polling station today)



I would say it is an open question, not only at the European level but at the global level, whether or not we have the optimum configeration, or constallation, of rating agencies.

As with many things, the more you have competition the better. But, but I have no position of the governing council on whether or not we are calling for an European rating agency.

He also wins some points from his audience by insisting that Greece and Portugal are "not in the same boat. That is obvious if you look at the facts and figures."

2.06pm: Another journalist asks whether the decision to tear up the collateral rules for Greek debt last weekend was unanimous. Trichet doesn't want to say no, but can't say yes. Here's his answer (as I jotted it down):



We were unanimous in asking Greece to embark on a recovery programme.

We were unanimous in judging positively the recovery programme created with the EU and IMF

We were unanimous that there was a case for activating the loan that would, with the IMF, finance the programme.

Unanimity, Unanimity, Unanimity.

There was an overwhelming majority that we had to take the decision that was taken on Sunday, as a matter of consistency.

So not unanimous, then.

Trichet has also insisted that Greece will not default on its loans.

2.02pm: David Tweed of Bloomberg wants to know why the ECB didn't consider buying government bonds. Is it not going to take a decision, or has it already taken the decision? And what's Trichet's personal view on the need (or otherwise) for an orderly default mechanism.

Trichet says that "I think default, for me, is out of the question." And on quantitative easing, he is not budging. "It was not discussed. I have nothing more to say than that."

1.50pm: Question time.

A Bloomberg reporter hits Trichet with three questions: did the ECB discussed buying up government bonds to try and reassure the markets; does the eurozone need a proper method to allow its members to default on its loans, and why did the ECB only relax the rules on accepting Greek bonds as collateral, rather than on all EU government bonds?

Trichet responds that the ECB did not consider engaging in quantitative easing (despite analysts suggesting some days ago that it should take the QE plunge), and that it certainly did not talk about mechanisms for allowing member states to default.

On the third question, Trichet says that the ECB was fully consulted and informed on Greece's "very ambitious" recovery programme, and that the rest of Europe had asked the ECB whether it was right to activate Greece's loans. As such, it felt confident that it could break the rule book for Greece.

Another questioner wants to know whether "saving the eurozone" is now the ECB's prime objective, rather than keeping inflation under control (not a question you can easily imagine being asked a few years ago).

Trichet's reply focuses on the ECB's record to this date:

We are inflexibly attached to price stability. It is our primary mandate. It is what the people of europe have asked of us and we are credible in this respect.

We will post average inflation over the first 12 years of the euro, at below or close to 2%. Exactly in line with what we said 12 years ago. This is a remarkable result.

Looking at my Reuters screen, the euro is falling again and threatening to go through the $1.27 mark.

1.42pm: The ECB press conference is just starting in Lisbon - a chance for Europe's top bankers to reassure the markets about the Greek crisis. It looks pretty packed - photographers falling over each other to get a good shot of Jean-Claude Trichet and his colleagues.

Trichet starts reading out a prepared statement, saying that it is "appropriate" to leave rates at 1%, with low economic growth helping to keep inflation in check.He also says that:

Overall we expect price stablility to be maintained in the medium term....inflation expectations remain anchored with the ECB's aim of keeping rates below, but close to, 2%.

Monetary policy will do all necessary to control price pressure in the medium term.

Trichet seems confident that the overall European economy is still recovering from the recession, but he admits that the Greek debt crisis is going to inhibit growth:



While adverse weather conditions dampened growth earlier this year, some strengthening took palce in the spring. The governing council expects real GDP to expand at an encouraging pace.....But the financial crisis will have a dampening effect on economic growth.

Trichet also said that the ECB continues to see the risks facing the economic outlook as "broadly balanced in an environment of high uncertainty". I've heard more reassuring forecasts.

Trichet rounds up by urging Europe's governments to get to grips with their burgeoning fiscal deficits as soon as possible, saying that the ECB does not believe that enough is being done. He warns that putting "decisive action" off will only make the eventual task even harder.

1.20pm: This video shows Greece mourning the dead bank workers (see above - you may have to refresh.....)

1.08pm: The uncertainty over Europe's debt crisis has sent some investors flocking to put their money into gold and the dollar. This has helped to weaken other currencies, meaning that gold priced in sterling has hit a new all-time high.

GoldCore, a group of bullion dealers, have more information:

The euro has again come under severe pressure as contagion risks increase. While all the focus is on Europe right now, similar risks face the UK and US economies and this is leading to significant safe haven demand for gold internationally. Prices have risen close to a new nominal record against the British pound and the highest level in yen since February 1983. Gold is slightly higher in most currencies this morning and significantly stronger in British pounds and euros - trading at $1,185.00, £786.03 and €925.72 per ounce this morning.

Goldcore added that European nations must raise almost €2 trillion ($2.6 trillion) within the next three years to refinance maturing bonds and fund deficits - which may prove a stretch too far:

The real risk is that the massive debts in various OECD countries are simply too big to bail out and neither the German government, individual governments or even the IMF itself can afford to bail out Greece, Spain, Portugal, Italy, Ireland or other debt ridden countries. As the Greek debt crisis spreads to other European nations there is a real risk of the crisis creating an international monetary and financial crisis. The Asian monetary crisis of 1998 looks quite tame and management compared with the risks today.

12.56pm: Right, we're had the ECB's decision - it has left interest rates unchanged at 1% (so that rumour going round the trading floors this morning was bogus).

This has hit the euro, which dropped to a new 14-month low of $1.2717 against the dollar. It also nudged 84.32p against the pound (lowest since June 2009).

We'll get the good stuff after 1.30pm when the press conference with ECB head Jean-Claude Trichet kicks off.

12.42pm: While we wait for the ECB's decision on interest rates, let's flag up this topical image going round the City today.

(via FT Alphaville):

Live blog - Alphaville chart Photograph: guardian.co.uk

Generally, though, the feeling is that traders are still sitting tight before we get the results of today's general election (with bond markets opening at 1am)

11.49am: While we're waiting for the European Central Bank's decision on interest rates (and there's a rumour going round the City that they might announce a surprise cut), here's some more info from Moody's report on banking contagion.

On Ireland:

Ireland was one of the first countries to be affected by the abrupt bursting of the real estate bubble. But it has also been among the first to take decisive actions, first by guaranteeing banks' debt, and then by implementing the restructuring and recapitalisation plan, combined with very severe austerity packages imposed by the government. The government and the banks now have to execute the plans and hope that the decisiveness and large acceptance of the austerity measures by the population will see them emerging stronger, albeit smaller, at the end of this process.

The UK:

With the economy facing challenges, the banking sector remains vulnerable: the highly leveraged economy is benefiting greatly from the benign interest rate environment, but the threat of a doubledip recession (in case of a fiscal tightening that is too harsh) or increased funding costs for the banks and the sovereign (in the opposite case) remain. Many banks and building societies are also still vulnerable to the downside scenarios, especially in their domestic retail and real estate exposures. Moreover, a deterioration in unemployment or higher interest rates are likely to further impact asset quality.

11.13am: Some reassuring (ish) news from Spain in the last few minutes. It successfully auctioned off €2.3bn of government debt.

It had to pay a higher yield than in a similar sales in March - 3.6%, up from 2.8% - indicating that investors demanded greater rewards for holding Spanish debt until 2015.

But the auction also attracted almost two-and-a-half as many bids as required, indicating that investors weren't too bothered by the downgrading of Spain's credit rating last week.

The markets have taken this news well, with the FTSE 100 now up 19 points at 5361.

Marc Ostwald of Monument Securities said the result was "a classic example of there being a price for everything".

10.51am: More action from Greece, where finance minister George Papaconstantinou has just given a speech urging parliament to adopt the austerity measures at the vote later today.

He warned that the only alternative was a complete financial collapse:

The only way for the country to avoid default and bankruptcy is to take the money from our European partners and the IMF. It is very simple. In order to get this money we have to agree on this 3-year economic programme.

Papaconstantinou also acknowledged that other members of the eurozone face their own problems:

We are asking for money from countries which themselves have deficits, which themselves are the target of speculative attacks. We have to convince them that we are putting our house in order.

10.37am: Right, we've got more information on those headlines from Moody's. It has published a research piece called "Sovereign Contagion Risk -- Part I: Assessing the Impact on Banking Systems of Southern Europe, Ireland and the UK".

The report looks at banks in three of the weakest members of the eurozone, Portugal, Spain, Italy and Ireland* , as well as Britain.

* who some analysts controversially group with Greece as the "PIIGS"

There's a link to the report here, but I'm afraid you have to have registered. So here's the highlights....

• Each of these countries' banking systems faces different challenges of different magnitudes"....but contagion risk could dilute these differences and impose very real, common threats on all of them"

• Despite facing a fundamentally different situation compared with Greece, Portugal is now under heightened investor scrutiny, resulting in this week's review for possible downgrade on the ratings of all Portuguese banks. A key factor determining whether contagion risk continues in this case will be the market's view of the likely success or otherwise of the recently agreed IMF and European Union support package for Greece. Italy is another country where the banking system had been relatively robust so far, but where the major risk to its banking system could also be challenged by contagion risk should the market pressures on the sovereign increase.

• Contagion could potentially also spread to banking systems that have weakened from within, often due to excessive loan growth (mostly Spain and Ireland and to a lesser extent the UK).

UK bank shares are down today, with RBS, Barclays and Lloyds all down by around 1.7%. Despite this, the FTSE has clawed back its early losses and is up 1 point.

10.13am: We're seeing some alarming quotes from ratings agency Moody's on the Reuters screen, warning that the Greek crisis could hit weaker members of the eurozone - and even hit Britain's banking sector.

Here's the snaps:

MOODY'S ASSESSES RISK OF SOVEREIGN CONTAGION ON CERTAIN EUROPEAN BANKING SYSTEMS

MOODY'S SAYS SOVEREIGN RISK CONTAGION COULD SPREAD TO BANKING SYSTEMS IN PORTUGAL, SPAIN, ITALY,IRELAND AND THE UK



More as we get it...

10.00am: Athens is in clean-up mode this morning after yesterday's rioting. Parliament continues to debate the highly unpopular austerity measures today, and we are expecting a vote on a draft bill to take place Thursday night.

As I mentioned at 7.59am, many bank workers are on strike in protest at the three deaths yesterday, although some major branches in the centre of the capital are reported to be still open.

Today's Greek newspapers show the extent of the shock over yesterday's fatalities. Here's a flavour:

Kathimerini, a centre-right paper, warned that Greece could be "on the road to distruction" in a sombre, hard-hitting editorial:

Can a society self-destruct? Yes, it most definitely can and the way Greece is headed right now it is a very real possibility that it will. Here we have a state and a society that allow a handful of nihilistic hooligans to torch the city and cause the deaths of three citizens. We have the leadership of the country's second biggest political party opting for a populist line of rhetoric and failing to answer a simple question on whether or not it will support the government's economic recovery plan. We see a society that is mad, and justifiably so, and we see it going down an ill-advised path. Then we see the government, caught in the grips of panic, contributing to the populist fever and pouring more oil over the fire. Greece is at the most crucial point of its post-1974 history and whether we destroy ourselves or not, whether we go bankrupt or not, depends not just on our political leadership, but also on every single one of us individually and collectively.

Eleftheros Typos, a right-wing newspaper, said that the Greek government had left the capital "at the mercy of murderers":

Three innocent, working Athenians lost their lives by brutal murderers. In democratic regimes there is also the right to work. This time again, police did not manage to disperse the hoodlums. According to eyewitnesses, they were walking unchecked on both sidewalks of Stadiou street and they were left free to impose their own law, the law of the jungle. Really, apart from condolences, what else will authorities utter?

And Ta Nea, a centre-left paper, wrote that:



The glory of democracy is that it assures everyone's right to express ideas, without limits. Put simply, in democratic regimes freedom of speech prevails. Yesterday's tragedy in the centre of Athens took place because democratic rights were trampled on. A protest march was subjected to violence. Where Greece finds itself today, no government can reject the demands imposed by its lenders. It could perhaps make the criterion of social justice more evident. This is what protesters were demanding yesterday but the gruesome acts overshadowed this.

In Britain, the front page of the Daily Mail shows a Greek policeman in flames after being hit by a petrol bomb. It calls the Athens protests an "election wake-up call for Britain".

9.17am: Some breaking news in from Germany, where politicians continue to debate the €110bn rescue package for Greece ahead of tomorrow's crucial parliamentary vote.

Frank-Walter Steinmeier, the head of the opposition Social Democrats party, has told reporters in Berlin that Angela Merkel's government has opened talks about "increasing the financial sector's participation" in the bailout.

That could help to ease the unpopular plan through the German Bundestag.....

8.45am: The City seem to be taking today cautiously while it waits to see how the general election unfolds. Interestingly, there's been good demand for UK government debt this morning - despite predictions that the UK deficit will overtake Greece's this year.

Andrew Roberts, head of European rates strategy at RBS, told Reuters there's little sign of a 'gilt strike' hitting Britain:



The massive flight to quality is ongoing: European bonds haven't really done much this morning and the UK has shown over the past two weeks that there's a willingness to buy at these yield levels. I still think gilts are very good value here and they will continue to rally.

Good news for whoever occupies Number 11 Downing Street next week.

8.10am: The London stock market has opened, and once again shares are falling. After dropping over 1% at the very start of trading, the FTSE 100 is currently down 34 points at 5307, a 0.6% fall.

Germany's DAX is down 0.4%, while the French CAC has lost almost 1% and Spain's major market fell 1.3%.

Those falls are bigger than expected, and it appears that traders got the wobbles as the markets were about to open. David Buik, an experienced City analyst, explains:



A minute before the off the FTSE was scheduled to open up 22 points down at 5319. Then it was like a torrent - a burst dam with sellers falling over themselves to get short. I have not seen that for some months. It opened down 60 points! but has now steadied down 34 at 5307 at 8.07am

7.59am: Greek bank workers have halted work for 24-hours in protest at the deaths yesterday of three people in the fire at a branch of the Marfin Egnatia Bank, during the general strike that brought Athens to a standstill.

The Greek labor union of bank employees, OTOE, called the strike to protest at the tragedy.

One 32-year-old pregnant woman and two other people, a man and a woman between 30 to 40 years old, died from asphyxiation after petrol bombs were thrown into the branch.

Our Greece correspondent, Helena Smith, filed this report from the scene of the bank fire yesterday.

7.50am: Looking at the foreign exchange markets, and the euro is taking another battering.

In the last few hours it has fallen another cent against the dollar, and just touched a lowpoint of $1.2752 - a fresh 14-month low, I reckon.

Euro against the dollar. Financial information supplied by Thomson Reuters

It appears that Far East investors are becoming more concerned about the stability of the single currency. As Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore, told the Associated Press:

The market is realising the problem in Europe is not easy to fix.

The euro has also lost ground against sterling, to 84.7p (that means one pound is worth €1.18).

7.41am: Europe's major stock markets open in about 20 minutes. Shares have fallen for the last two days, and the word in the City is that there's little chance of a rally this morning.

Asian markets have dropped sharply overnight, with Japan's Nikkei index just closing 3.3% lower at a two-month low. Japanese investors haven't had much chance to react to events in Europe this week as markets have been closed due to public holidays.

This just in from Ben Potter, research analyst at IG Markets:

There's no let-up in concerns that the Eurozone debt crisis could continue to worsen and as a result equity markets across the globe remain under pressure. The bull market always had to end somewhere and it looks like this could be the trigger with Gold and the US$ being big winners whilst even oil prices tumble - although the foray below $80/barrel is looking to be short lived. The ECB rate verdict will prove interesting later in the day as presumably Trichet and his team will look to calm the nerves of investors whilst the weekly jobless claims from the US will be scrutinised ahead of tomorrow's non-farm payrolls.

I've also got a note from Gary Jenkins of Evolution Securities. Here's a highlight:

All eyes and ears will be on the ECB today. Not so much on their decision regarding interest rate policy but on Trichet's statement and then the following press conference. Will he claim that the markets are irrational and that is no need for any extraordinary measures to be taken by the ECB, or will he try and manipulate the markets by suggesting that they would be prepared to use all powers at their discretion to ensure solvency for sovereigns and the banking sector alike? The very fact that Bundesbank President Axel Weber stated yesterday that the Greece crisis does not merit "using every means" suggests that they are indeed at least considering every option.

7.29am: The key scheduled event today is the European Central Bank's monthly meeting to set interest rates across the eurozone. We'll get its decision on rates at 12.45pm BST, but the real interest will be in Jean-Claude Trichet's press conference shortly afterwards.

Expect Trichet to get a grilling about the Greek crisis, and whether the ECB is doing enough. It has already dropped the minimum credit rating requirement for Greek government bonds used in its liquidity operations. Now, though, some analysts speculate that the ECB may have to start buying government bonds in an effort to prevent confidence in the eurozone disintegrating further.

This is one of those occasions when the ECB goes 'on the road' and holds its meeting in a European capital, in this case Lisbon. That's an interesting choice, given that Standard & Poor's has already downgraded Portugal's credit rating, and yesterday Moody's threatened to follow.

7.15am: Morning all, on a day when Europe's financial crisis continues to dominate events in the world financial markets. I'll be blogging the latest events here for the next few hours.

We're expecting interesting developments in Greece (after yesterday's riots), Germany (where the Greek bailout continues to divide politicians), and here in London (where traders expect another nervous day as Britain goes to the polls). But on current form, this drama could flare up pretty much anywhere....