GLOBAL MARKETS-Euro gains, bonds fall before key EU meeting

* Euro rises, bonds fall on hopes before EU debt summit

* Hints of progress in U.S. debt talks, but doubts persist

* Apple racks up huge sales but fails to lift Wall Street

* Gold recovers but stuck below $1,600; oil rises (Updates with closing U.S. market levels, adds Fed's Plosser)

By Richard Leong

NEW YORK, July 20 (Reuters) - The euro gained on Wednesday on guarded optimism an accord would be reached to avert a Greek default, reducing the appeal of low-risk U.S. and German government debt.

World stocks, with the exception of Wall Street, rallied on strong earnings and expectations European officials could achieve a viable financial rescue for Greece at a summit in Brussels on Thursday. see [ID:nLDE76J0CA].

Doubts persisted whether a second round of aid worth 110 billion euros for highly indebted Greece would be enough to stop the region's crisis spreading to Italy and Spain, the euro zone's third- and fourth-largest economies.

"We expect a new framework for Greece to be agreed, involving the first real efforts to reduce Greece's debt burden. But we expect little concrete in terms of measures to reduce contagion more broadly," said Jens Nordvig, global head of G10 FX strategy at Nomura in New York.

In the United States, hints of progress in Washington over cutting the federal debt and increasing the $14.3 trillion statutory borrowing limit allayed some anxiety over a possible default and the loss of top-notch credit ratings.

A bipartisan group of U.S. lawmakers dubbed the "Gang of Six" presented a new plan late on Tuesday that could revive the stalled U.S. debt talks. This reduced fears lawmakers may fail to lift the federal borrowing limit and cause the world's biggest economy to default and lose its prized credit grade from rating agencies. For more, see [ID:nN1E76H1Y0]

U.S. President Barack Obama expressed support for the bipartisan proposal but doubts remained whether it could muster enough votes to pass.

"I wouldn't jump for joy until I see the details," said Komal Sri-Kumar, chief global strategist at Trust Company of the West in Los Angeles, which manages $121 billion in assets. "I would also like to see diligent spending control rather than just raising the debt ceiling."

Despite those reservations over debt deals on both sides of the Atlantic, investors bought the euro and pared holdings of safe-haven U.S. and German government debt.

The 30-year Treasury bond fell more than 1 point in price to yield 4.26 percent after posting its best day in eight months. The benchmark 10-year note was down 17/32 with its yield at 2.94 percent. See [US/]

German Bund futures were down 0.5 percent at 128.35.

In the currency market, the euro traded at $1.4221, near its session high of $1.4239. In two days, the single European currency has gained 0.8 percent. [FRX/] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphics: Euro zone crisis: http://r.reuters.com/hyb65p U.S. budget deficit proposals: http://r.reuters.com/vub62s U.S. existing home sales: http://r.reuters.com/tyg72s Inflation adjusted gold price: http://r.reuters.com/pun62s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

U.S. STOCKS STRUGGLE

Another batch of upbeat earnings was not enough to extend a rally for Wall Street stocks after their best day since March as investors remained cautious over whether enough is being done to keep the U.S. and European debt problems from spiraling into a global crisis.

"There's still tremendous uncertainty around the U.S. debt ceiling and the euro zone, and while earnings have been good, it isn't surprising to have a big up day followed by a down day," said David Carter, chief investment officer at Lenox Advisors in New York, referring to Tuesday's stocks gains.

Instead, U.S. stocks struggled, but Apple's strong earnings helped put a floor under stock prices.

Apple Inc reported blockbuster quarterly results after the market closed on Tuesday. The maker of the iPhone and the iPad rose 2.7 percent to $386.90 a share after flirting with a record high of $400. For more, see [ID:nN1E76J0A0]

The robust results and Monday's surprisingly strong housing starts data have reduced fears of a recession, analysts said.

Philadelphia Federal Reserve President Charles Plosser told Reuters on Wednesday the U.S. central bank may need to tighten monetary policy later this year if economic growth accelerates and unemployment falls. [ID:nN9E7HG01Y]

In Europe, the FTSEurofirst 300 <.FTEU3> gained 1.3 percent, cutting its year-to-date losses to around 3 percent.

Earlier, Japanese stocks marked their biggest daily rise in three weeks. The Nikkei <.N225> closed up 1.2 percent.

World stocks as measured by MSCI <.MIWO00000PUS> were up 0.6 percent despite a mixed U.S. stock market.

The Dow Jones industrial average <.DJI> closed down 15.51 points, or 0.12 percent, at 12,571.91. The Standard & Poor's 500 Index <.SPX> was down 0.89 points, or 0.07 percent, at 1,325.84. The Nasdaq Composite Index <.IXIC> was down 12.29 points, or 0.43 percent, at 2,814.23.

Data signaling strong energy demand, together with improved investor sentiment, helped lift oil prices. Brent oil futures in London were up $1.04 at $118.10 a barrel, while U.S. crude for August delivery in New York settled up 64 cents at $98.14. [O/R] (Additional reporting by Ryan Vlastelica, Wanfeng Zhou, and Gene Ramos and Karen Brettell)