THE Straits Times Index yesterday plunged 31.07 points or just under 1.1 per cent to 2,900.91 as Europe-related selling/ shorting resumed following Tuesday's short-covering bounce. Turnover remained at depressed levels with unit volume concentrated in low-priced stocks but even in this segment there were signs that interest may be flagging.

Western markets all closed in the red on Tuesday following political turmoil in Greece that could well see the country exiting the eurozone and defaulting on its loans. Most also opened below water in the late afternoon yesterday.

Active trading

This is all because the main winners in Greece's weekend general election who were voted in on an anti-austerity, anti-bailout platform have been unable to form a coalition government. This means Greece could have to hold another general election soon, thus prolonging the uncertainty.

If a second election fails to yield victors who can form a coalition government, the process will have to be repeated until a government is formed.

In its assessment of the results of the French presidential elections which were also held this past weekend, Bank of America-Merrill Lynch said its foreign exchange strategist sees a likelihood of "political paralysis" in Greece.

Ideaglobal said that Greek voters made a dangerous bet by voting for anti-bailout parties while still wanting to remain in the euro. "The question now is whether international creditors will be willing to relax the conditions of the bailout programme, which at this point looks like the only way Greece could remain in the eurozone," it said.

Elsewhere, Schroders in its Quickview titled The rising tide against austerity said what is concerning about the victory in France by new president Francois Hollande is the potential rift Mr Hollande could open up with Germany's Chancellor Angela Merkel over European austerity.

"Even during his presidential election campaigning, Hollande was exchanging public statements with Merkel about the need for a 'Growth Pact' in addition to the 'Fiscal Pact' already agreed," said Schroders.

However, the investment managers added that it doubts if Mr Hollande will have much success in changing the mind of Ms Merkel: "This could be a case of Hollande's bark being worse than his bite."

Given the state of flux that Greece and the rest of Europe find themselves in, weakness and low volume in index stocks is perhaps to be expected. Market leadership over the past month has thus fallen to the lowest-priced issues, stocks priced at only a few cents each which have been churned mainly by proprietary traders and dealers using their own accounts.

In yesterday's session new names such as Eucon and Blumont entered the top volume list but activity was much more subdued than before. Turnover excluding foreign currency issues was 2.03 billion units worth $1.1 billion, giving an average of about 54 cents per unit, three times the average of a week ago. Excluding warrants, there were 132 rises against 255 falls.

As for the US, DBS Group Research in its 7 May Daily Breakfast Spread said "the end of innocence is nigh" because contrary to popular belief, growth is not accelerating. DBS said that recent growth figures have been skewed by a surge in car sales which will soon plateau. Noting that there has been no business investment in seven months, DBS said "growth is slow and slowing, the labour market is deteriorating and the outlook for fiscal policy and congressional cooperation is scary."