Euro, stocks waver on caution over Greek talks

By Herbert Lash

NEW YORK (Reuters) – The euro fell against the dollar and global equity markets were mostly lower on Friday, off record or multiyear highs, as investors remained cautious over negotiations for arranging a loan agreement that would help Greece avoid bankruptcy.

Germany’s DAX index <.GDAXI> hit a new record intra-day high before paring gains while Europe’s leading index <.FTEU3> hovered just below seven-year highs. Wall Street opened lower, with the benchmark S&P 500 unable to climb past the 2,100 mark.

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.

Maltese Finance Minister Edward Scicluna told the weekly Malta Today that the European Union’s biggest countries may be prepared to let Greece leave the euro zone.

“Word’s out now that the euro zone is fully prepared to let Greece out, that’s not a positive story, it’s much more negative,” said Ken Polcari, director of the NYSE floor division at O’Neil Securities in New York.

The euro fell against the U.S. dollar for a third consecutive session, down 0.26 percent at $ 1.1336. Against the yen , the dollar was off 0.3 percent at 118.58.

MSCI’s all-country world equity index <.MIWD00000PUS> fell 0.13 percent, while the European FTSEurofirst 300 <.FTEU3> index of top regional shares slid 0.03 percent to 1,519.80.

On Wall Street, the Dow Jones industrial average <.DJI> fell 9.69 points, or 0.05 percent, to 17,976.08, and the S&P 500 <.SPX> shed 3.16 points, or 0.15 percent, to 2,094.29. The Nasdaq Composite <.IXIC> added 1.83 points, or 0.04 percent, to 4,926.53.

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 74 basis points to 16.39 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 has 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 <.FTEU3> has risen 11 percent so far this year, outpacing a 1.9 percent gain in S&P 500 <.SPX>, helped by the European Central Bank’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.

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

Brent crude futures for April were up 47 cents at $ 60.68 a barrel. U.S. crude for March delivery was down 17 cents at $ 50.99. The contract expires on Friday.

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