Asian shares fall after Greece coalition deal

Tokyo: Asian shares struggled on Monday, with investors still nervous despite the formation of a new Greek unity government intent on avoiding imminent debt default.

MSCI's broadest index of Asia Pacific shares outside Japan was down 0.1 per cent, while Japan's Nikkei stock average .N225 fell 0.5 per cent.

US stock index futures opened higher after Greek Prime Minister George Papandreou and opposition leader Antonis Samaras agreed on a new coalition government to approve the bailout plan, which requires painful fiscal reform, before elections.

Papandreou and Samaras had been scrambling to reach a deal before finance ministers of euro countries meet in Brussels later on Monday, to show that Greece is serious about taking steps needed to stave off bankruptcy.

Political wrangling in Greece had sparked panic in global financial markets on fears that it would fail to save the country from defaulting and to stop the sovereign debt crisis from spreading to other countries in the euro zone.

While Greece has for now managed to stay on track to reduce its huge debt, market jitters remain over a lack of funding to beef up the bailout fund after the euro zone failed to get any concrete pledge for new money at a G20 summit on Friday.

Investors were also shifting their attention to another debt-burdened country, Italy, putting it under pressure to swiftly restore its credibility on financial markets.

"We believe what will matter more for markets in the near term is the relatively disappointing outcome of the G20 meeting, given the lack of progress on backstop facilities," Barclays Capital analysts said in a report.

"Any further rise in Italian yields and spreads would make us very cautious about cross-market implications for risk assets," they said.

Italian Prime Minister Silvio Berlusconi said Italy would welcome quarterly IMF monitoring of pension and labor market reforms and privatizations he had promised to implement.

Leaders of the world's major economies deferred until next year any move to provide more crisis-fighting resources to the International Monetary Fund.

The euro fell 0.3 per cent to below $1.38 against the dollar while safe-haven US Treasury futures trimmed earlier losses as riskier stocks wavered.

A retreat in investor appetite for riskier assets helped safe-haven government bonds, with US Treasury futures down 2.5/32 at 130-05.5/32 from 130-08/32 late on Friday in New York. It was down to around 130 in early Asia on Monday.

Italy is the third largest economy in the euro zone with the biggest government bond market. With debt levels stuck at 120 per cent of GDP, the country's debt problems would pose a much bigger risk to the financial markets than Greece.

Italy's borrowing costs have been rising sharply over the past several weeks.

Italian 10-year government bond yields hit record highs of around 6.4 per cent on Friday, as the spread of Italian 10-year yields over Bunds scaled a new lifetime high.