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Morsi meets EU representative as violence continues

Marwan Naamani | AFP | Getty Images

Violence has continued across Egypt over the past 24 hours, as European Union (EU) foreign policy chief Catherine Ashton confirmed on Tuesday that she had met ousted President Mohamed Morsi during her visit to the country.

The official twitter account of the European External Action Service, led by Ashton, said a "two hour in-depth discussion" had taken place. The deposed head of state has been held incommunicado at an undisclosed location since his removal from power on July 3.

Ashton said during a press briefing that Morsi was well and had access to information outlets, such as a television and newspapers. She repeated earlier calls for a peaceful resolution to the political impasse.

(Read more: Egyptian security forces shoot dead at least 70)

It followed comments by a spokesman for the Egyptian Presidency on Monday that Morsi was not a political prisoner, and would be held accountable in a regular court of law. His supporters and an umbrella coalition known as the Anti-Coup Alliance have called for a "million-man march" later on Tuesday.

Egypt's benchmark stock exchange, the EGX index, opened higher in early trade on Tuesday, building on gains of 11 percent over the past month.

"I think cautious optimism best describes the current market pulse," Ahmed Ozalp, managing director at Cairo-based Akanar Partners, told CNBC.

"But a lot rests on how quickly or not we are able to reach some political compromise and agreement, because in the meantime the instability just adds risk to the cost of investment".

The cost of insuring Egypt's debt against default for five years in the CDS market rose by 23 basis points (bps) to 782 on Monday, according to Markit, but it remains over 100 bps below the record levels reached in early July.

A break in the political deadlock does not appear close, however, and the domestic security situation remains fragile.

(Read more: Egypt's Brotherhood stands ground after killings)

State-owned media reported on Monday that three soldiers died in attacks on various "security locations" by "terrorists" in the Sinai Peninsula. The region is home to the Suez Canal - one of the world's busiest waterways - but there were no reports of disruption to shipping activity. Elsewhere, at least 12 people were killed in a brawl that broke out among street vendors in Cairo.

Late on Monday, White House Press Secretary Josh Earnest said the U.S. "strongly condemns" the weekend's clashes.

The latest events in the country will not lead to an immediate suspension of U.S. financial assistance for Egypt's military to the tune of $1.3 billion, as whether what happened in July constituted a military coup is still being reviewed. "I don't have any change in our posture to report to you today," Earnest said.

Republican lawmakers are already pressing the administration for clarification, and the matter is expected to be discussed - and possibly voted on in the Senate - as early as this week.

As investors await clarity on how the interim government will revive failing economic growth, volumes have already picked up on the EGX.

(Read more: Violence doesn't shake up Egyptian stock market)

"Since June 30 average volumes on the EGX increased substantially, especially when considering the shortened trading hours of Ramadan," Ozalp said. "Local investors had accumulated significant cash reserves and in some cases dollarized, having been on the sidelines for the past year or so."

The Market Vectors Egypt ETF, one of the most popular ways for U.S. investors to gain exposure to Egypt, closed 1.45 percent lower on Monday, its first chance to price in the weekend violence

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