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Euro zone sentiment weakens in July on Portugal doubts

Euro zone sentiment unexpectedly weakened in July after two months of gains as Portugal's government crisis posed a threat to its bailout program and investors struggled to identify growth drivers going forward, a survey showed on Monday.

Sentix research group said its index tracking investor sentiment in the 17-nation currency bloc slid to -12.6 in July from -11.6 in June, falling short of a consensus forecast in a Reuters poll of economists for a rise to -10.

"Although it appears, as last month, that we've overcome the weak period at the start of the year, the majority of investors cannot imagine more momentum in the economy at present," Sentix said in a statement.

"The overall index was most hit by Portugal's government crisis. We saw something similar in March, albeit more pronounced, when investors were unnerved by the uncertainties surrounding Italy's struggle to form a government."

Portugal's prime minister promoted the head of the junior coalition party to be his deputy on Saturday, hoping to end the political rift that threatened to bring down his government.

The crisis in the coalition broke out following the resignations of the finance and foreign ministers last week and has jeopardized progress of Lisbon's program under its 78-billion-euro bailout from the European Union and IMF.

A sub-index of euro zone expectations was unchanged at 7.3 in July from the previous month, reflecting investors' inability to identify fresh growth drivers in the economy.

The index on Germany by contrast rose to 18.4 from a previous 16.2.

[Source: Reuters, Berlin, 08Jul13]

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