Euro, stocks edge higher on Greek draft accord

By Herbert Lash

NEW YORK (Reuters) – The euro rose against the dollar and global equity markets edged higher on Friday after a Greek government official said euro zone ministers and Greece agreed on a draft accord that could extend a loan agreement to help Greece avoid bankruptcy.

However, officials stressed that there was as yet no formal agreement in the full meeting of the Eurogroup of 19 finance ministers.

“A lot of people are sensing you might get the news over the weekend, so you have a lot of caution going into today,” said Ken Polcari, director of the NYSE floor division at O’Neil Securities in New York.

Earlier Germany’s DAX index (.GDAXI) hit a new record intra-day high before paring gains and Britain’s top share index (.FTSE) closed up within 0.5 percent of a 15-year high. Europe’s leading index (.FTEU3) closed at fresh seven-year highs, while the U.S. benchmark S&P 500 index traded just below record highs.

Greece’s leftist prime minister said he was certain euro zone finance ministers would accept Athens’ request for an extended loan, but Germany demanded “significant improvements” in Greek reform commitments.

A report by German magazine Der Spiegel that the European Central Bank was making contingency plans for a possible Greek exit from the currency area if the talks fail, on which the ECB declined comment, highlighted the high stakes.

The euro (EUR=) pared losses against the U.S. dollar to trade up 0.3 percent at $ 1.1400. Against the yen (JPY=), the dollar pared lossed to trade 0.23 percent lower at 118.67.

MSCI’s all-country world equity index traded flat, up 0.12 percent, while the European FTSEurofirst 300 (.FTEU3) index of top regional shares closed up 0.33 percent at 1,525.21.

On Wall Street, the Dow Jones industrial average (.DJI) rose 39.64 points, or 0.22 percent, to 18,025.41. The S&P 500 (.SPX) gained 1.4 points, or 0.07 percent, to 2,098.85 and the Nasdaq Composite (.IXIC) added 8.26 points, or 0.17 percent, to 4,932.96.

Greek bond yields pushed lower on hopes euro zone finance ministers will eventually reach a deal on a loan agreement.

Greek three-year yields dropped 63 basis points to 16.497 percent, pulling further away from last week’s highs above 22 percent.

The Greek stalemate overshadowed data pointing to growth in Germany and France, which helped push European shares higher.

Half way into the European earnings season, results have been strong. Fourth-quarter earnings are expected to grow 19.5 percent, which would be the best quarter in 3 1/2 years.

The FTSEurofirst 300 has risen 11 percent so far this year, outpacing a 1.9 percent gain in S&P 500, helped by the ECB’s plans to buy government bonds to boost the economy.

The gap between the yield of 10-year U.S. Treasuries and the earnings yield of the S&P 500 is at its widest in 40 years, said Alex McKight, a portfolio manager at GAM in New York.

“We see global yields as ridiculously suppressed, be it the U.S, be it Europe,” McKnight said. “This is the level (at which) I may not be piling into equities right here, but I don’t think they’re bad value” relative to government bonds, high-yield or investment grade credit, he said.

U.S. Treasury debt prices rose, boosted by safe-haven buying as investors worried about continued bargaining between Greece and other euro zone countries .

Benchmark 10-year Treasuries were last up 15/32 in price to yield 2.0574 percent.

Brent crude oil steadied above $ 60 a barrel on Friday as news of falling U.S. rig count numbers outweighed concerns about oversupply.

Brent crude futures (LCOc1) for April were up 15 cents at $ 60.36 a barrel. U.S. crude for March delivery (CLc1) fell 26 cents at $ 50.90. The contract expires on Friday.

(Additional reporting by Emelia Sithole-Matharise, Alastair Smout and Jemima Kelly, Reporting by Herbert Lash; Editing by Chizu Nomiyama)