Breaking news: The IMF has signed off on a four-year loan programme for Ukraine worth $17.5bn. IMF chief Christine Lagarde said described it as ambitious, but added that there is a “reasonably strong prospect of success”.

European stock markets have closed.

• FTSE 100 index rises 18.67 points to 6,721.51, a 0.3% gain
  
• Germany’s Dax closes 2.7% higher at 11,805.41, setting a fresh record closing high
• France’s CAC gains 2.4% to 4,997.28
• Italy’s FTSE MiB adds 2.2% to 22,833.04
• Spain’s Ibex up 1% at 11,009.7
• The Greek stock market lost 2.5% to 797.3

Here in the UK, Bank of England rate-setter Martin Weale sees the risk of a sharp fall in sterling because of the country’s large balance of payments deficit.

Britain’s current account deficit was equivalent to 6% of GDP in the third quarter of last year, matching the biggest deficit on record.

After giving a speech in London, Weale said, echoing comments he made last month:

Certainly it seems to me that there is a risk of a sharp movement in the exchange rate. I would be inclined to say more of a risk of a sharp downward movement.

The economy always springs surprises, and what’s been happening to sterling in the last few weeks has been one of those surprises.

US stock markets are up slightly in early trading following sharp falls on Tuesday.

• Dow Jones: +0.2% at 17,702.78

• S&P 500: +0.1% at 2,046.06

• Nasdaq: +0.2% at 4,336.48

Reuters is reporting that doubts over Greece’s future membership of the eurozone are straining its relationship with Cyprus.

Cyprus wants to reverse a perception that the two countries are inextricably linked, worried that it could be dragged down with Greece, should Athens’ finances collapse and force the Greeks to abandon the euro.

The fate of Cyprus, a divided island on Europe’s frontier with the Middle East, could prove an important test of the durability of the eurozone and the wider European Union in the face of political uncertainty in Greece.

“(Sharing a) language is one thing but being the same economy is completely different,” said Harris Georgiades, finance minister of a country largely populated by Greek Cypriots. Linguistic solidarity leads Cyprus and Greece to give each other’s contestant the top score each year in the Eurovision song contest.

“There are cultural ties but that’s it. We are following our own course,” Georgiades told Reuters in an interview.

Unlike Greece, Cyprus has been largely diligent in implementing reforms required in return for an international bailout it received in 2013. There has been little public protest despite the deep recession that ensued.

Their paths have diverged more sharply since the radical leftist Syriza party won power in Greece in January, denouncing austerity and demanding a reduction of its official debt.

The centre-right Cypriot government blames former Communist President Dimitris Christofias for delaying a cleanup of Cypriot banks that made the eventual bailout more painful.

Cyprus hopes to return to borrowing on bond markets this year, Georgiades said, while Athens has little such prospect.

Trade ties are modest. Greece ranks second behind Britain in selling services to Cyprus, such as holidays, but it lags far behind Russia, Britain and Germany as a customer.

The former British colony has also severed its banks’ links to Greece that resulted in heavy losses when Greek bonds were restructured or ‘haircut’. It was those losses that fatally compromised the Cypriot financial system and prompted its bailout.

“We hope that there will be no problems in Greece,” said Chrystalla Georghadji, the governor of the Central Bank of Cyprus. “But if there are any problems, the banks here are ring-fenced.”

The German government has dismissed threats from the Greek government, which has claimed it is ready to seize German assets as compensation for Nazi war crimes.

Steffen Seibert, spokesman for German chancellor Angela Merkel said:

It is our firm belief that questions of reparations and compensation have been legally and politically resolved.

We should concentrate on current issues and, hopefully, what will be a good future.

A spokesman for the German finance ministry said there was no reason to hold talks about reparations and that the demands were a distraction from the serious financial issues facing Greece.

Tensions between Greece and Germany have been raised a few notches, with reports from Athens that justice minister Nikos Paraskevopoulos is threatening to seize German assets to compensate Greek victims of Nazi war crimes.

This report from Greek daily newspaper ekathimerini:

Justice Minister Nikos Paraskevopoulos has said he is ready to sign an older court ruling that will enable the foreclosure of German assets in Greece in order to compensate the relatives of victims of Nazi crimes during the Second World War.

Greece’s Supreme Court ruled in favor of Distomo survivors in 2000, but the decision has not been enforced.

Distomo, a small village in central Greece, lost 218 lives in a Nazi massacre in 1944.

“The law states that in order to implement the ruling of the Supreme Court, the minister of justice has to order it. I believe this permission should be given and I’m ready to give it, notwithstanding any obstacles,” Paraskevopoulos told Antenna TV on Wednesday.

“There must probably be some negotiation with Germany,” said Paraskevopoulos, who first announced his intention Tuesday during a Parliament debate on the creation of a committee to seek war reparations, the repayment of a forced loan and the return of antiquities.

During the same debate, Prime Minister Alexis Tsipras expressed his government’s firm intention to seek war reparations from Germany, noting that Athens would show sensitivity that it hoped to see reciprocated from Berlin.

Tsipras told MPs that the matter of war reparations was “very technical and sensitive” but one he has a duty to pursue. He also seemed to indirectly connect the matter to talks between Greece and its international creditors on the country’s loan program.

“The Greek government will strive to honor its commitments to the full,” he said. “But it will also strive to ensure all unfulfilled obligations toward Greece and the Greek people are fulfilled,” he added. “You cannot pick and choose on ethical issues.”

Tsipras noted that Germany got support “despite the crimes of the Third Reich” chiefly thanks to the London Debt Agreement of 1953. Since reunification, German governments have used “silence, legal tricks and delays” to avoid solving the problem, he said. “We are not giving morality lessons but we will not accept morality lessons either,” Tsipras said.

The euro is now down more than 1% against the dollar at €1.0572. That’s the lowest since April 2003.

It was as low as €1.0561 earlier this morning.

The euro has also hit a seven-year low against the pound, at 70.14p.

Greece has successfully sold €1.3bn of Treasury bills, covering the amount it needed to refinance a maturing issue.

The issue was more costly for the government however, with the paper sold at a yield of 2.7%, up from the 2.5% yield at a previous sale in February.

From Reuters:

Issuing short-term T-bills is the only source of commercial borrowing for the leftist government of Prime Minister Alexis Tsipras. The country’s EU/IMF creditors have set a 15 billion euro cap on such issues, which has already been hit.

Athens has asked for the ceiling on outstanding T-bills to be raised as foreign investors have increasingly fled its sales in recent months, but its euro zone partners have refused on fears it would be tantamount to central bank financing of governments.

UK industrial production and manufacturing both fell unexpectedly in January according to the latest figures published by the Office for National Statistics.

Industrial production fell by 0.1% over the month, dragged down by manufacturing output which fell 0.5%.

Economists had forecast growth of 0.2% for both.

The main reason for the falls appears to be a decline in computers and other electronic products.

On an annual basis, industrial production increased by 1.3%, while manufacturing output was up 1.9%.

The reason why industrial production didn’t fall further was a 2% rise in mining and quarrying over the month of January. It followed a 1.4% fall in December, and the ONS said January’s increased appeared to be driven by a rebound in oil and gas extraction in the north sea.

Christian Schulz, senior economist at German bank Berenberg, said the figures suggested British industry “had a subdued start into the new year”:

The volatile monthly changes should not be over-interpreted, but with German manufacturing flat and French manufacturing down only marginally in January, we cannot exclude that sterling’s current strength against the euro may hurt the export-dependent sector.

While UK manufacturing output should be relatively price-insensitive, the pound’s rise by 11% against the euro since December could become a significant head-wind for market share and profitability for UK producers in Europe in the near-term.

At this early stage, the disappointing January industrial output data puts only a very minor downside risk to our call for strengthening UK GDP growth in Q1 (to 0.8% quarter-on-quarter from 0.5% quarter-on-quarter in Q4).

Mario Draghi, president of the European Central Bank is oozing optimism at a conference in Frankfurt.

His view is that the ECB’s €1.1 trillion programme of quantitative easing - with bond purchases starting two days ago - may already be protecting eurozone countries from the Greek crisis.

We saw a further fall in the sovereign yields of Portugal and other formerly distressed countries in spite of the renewed Greek crisis.

This suggests that the asset purchase programme may be shielding euro area countries from contagion.

We are aware that our measure may entail some financial stability risks but currently these risks are contained.

Other points made by Draghi:

• The slowdown in eurozone growth has reversed

• Economic recovery should gradually broaden and hopefully strengthen

• Upwardly revised ECB forecasts are conditional upon the full implementation of all the Bank’s announced measures

• We are deploying monetary policy in a way that will stabilise inflation

• There is good reason to believe that as our balance sheet expands, it will support a rebound in inflation expectations

The euro has hit another 12-year low against this morning, falling to $1.0640. It has fallen 12% since the beginning of 2015, and 35% since last May.

It is a story of dollar strength as well as euro weakness, as the US Federal Reserve moves closer towards an interest rate rise while at the opposite end of the scale, the European Central Bank is injecting €1.1 trillion into the financial system through quantitative easing.

Parity here we come?

The euro is also down 0.3% against the yen, at 129.12 yen, the lowest since mid 2013.

Following yesterday’s sharp sell off, led by the FTSE 100 which closed down 2.5% or 174 points at 6,702.84, European markets are slightly up in early trading.

It’s hardly a major rebound though, as those weak China numbers and an uncertain future for Greece weigh on confidence.

• FTSE 100: +0.4% at 6,729.94

• Germany’s DAX: +0.3% at 11,539.55

• France’s CAC: +0.6% at 4,909.12

• Italy’s FTSE MIB: +0.8% at 22,518.86

• Spain’s IBEX: +0.6% at 10,964.5

Fears over a sharper-than-expected slowdown in China were raised overnight following a slew of weak data from the national statistics bureau.

Industrial output grew 6.8% over the first two months of the year, compared with the same period last year, disappointing expectations of a 7.8% increase and the weakest rate of growth since late 2008.

Retail sales also disappointed over January and February, with growth of 10.7% the weakest in a decade and weaker than the 11.7% increase forecast by economists.

And finally, investment - a crucial indicator of the health of the Chinese economy - increased by 13.9%. It was the weakest growth since 2001, and came in below expectations of a 15% rise.

Julian Evans-Pritchard, China economist at Capital Economics:

Today’s activity data have put pay to our expectation that GDP growth would strengthened slightly in Q1, with a slowdown now looking more likely.

Overall, the weakness in today’s figures is surprising given that a sharp slowdown in Q1 of last year will have provided a flattering base for comparison.

The upshot is that economic momentum appears markedly weaker than suggested by the recent recovery in export growth and PMI readings. As such, a further slowdown in GDP growth in this quarter now looks likely.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Markets fells sharply as a combination of factors weighed heavily on investor minds on both sides of the Atlantic.

The euro fell to a 12-year low against the dollar, largely as fears over Greece’s future persisted. Dollar strength and fears over China meanwhile weighed on commodity prices, pushing the value of energy companies lower.

Overnight China gave investors more reason to be fearful, with data on factory output, retail sales, and investment disappointing expectations and raising concerns over a sharp slowdown in the world’s second largest economy. More on that soon.

The other major event on the agenda today is Greece’s meeting with its creditors. Greek officials will meet with representatives from the European Central Bank, European commission, and the International Monetary Fund in Brussels and in Athens. The aim of the meeting is to make progress on Greek reforms so that a loan instalment can be released before Greece runs out of money.

We will bring you all the latest developments.