Markets sanguine over Cyprus uncertainty

Markets took the uncertainty over Cyprus’ bailout in their stride on Wednesday ahead of the latest policy statement from the Federal Reserve.

Though tensions remain over the financial future of Cyprus after its Parliament rejected a proposal to raid deposits, investors think some deal will be cobbled together soon, probably with Russia, to avoid the country's bankruptcy and possible exit from the euro.

“A deal with Russia is clearly seen as the best option in the markets, where investors are piling back into risk assets,” said Craig Erlam, market analyst at Alpari.

In Europe, Germany’s DAX was up 0.7% at 8,005 while the CAC40 in France rose 1.2% to 3,821. The FTSE 100 index of leading British shares was flat at 6,439 after the government's annual budget kept tax and spend policy more or less unchanged.

In the US, the Dow Jones industrial average was up 0.5% at 14,531 while the broader S&P 500 index rose 0.6% to 1,558.

Trading over the rest of the day will likely continue to be dominated by developments relating to Cyprus as political leaders there try to work out a new way to raise €5.8 billion euros in order to qualify for €10 billion worth of bailout funds from its euro partners and the International Monetary Fund. Much of the interest centers on Moscow, where the Cypriot finance minister Michalis Sarris is meeting his Russian counterpart.

Russia could play a role in any alternative rescue package. Russians are believed to account for just under a third of Cyprus' €68 billion bank deposits and the two countries are longtime allies.

"We will be here until some kind of agreement is reached," Sarris said.

Cypriot markets remained closed alongside banks and there is growing speculation they won't reopen until next week.