* Global equities rise on hopes European leaders to act
* Euro gains against U.S dollar as risk sentiment improves
* US debt prices fall, German bonds rise as crisis festers
* Brent crude prices pare gains on weak demand forecast (Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 13 (Reuters) - Global stocks and the euro rose on Tuesday on hopes Europe's top powers will supply fresh support for Greece, even as uncertainty driven by fears of a Greek default coursed through markets.
German Chancellor Angela Merkel sought to quash talk of an imminent default but market confidence suffered another blow when Italy had to pay the highest yield to sell five-year bonds since it joined the euro zone in 1999. For details, see [ID:nL5E7KD1TR]
A Reuters report quoting a Greek government official saying that Greek, German and French leaders would hold a conference call on Wednesday helped buoy the euro and underpin optimism in European equity markets. Two German government sources confirmed the plans. [ID:nL5E7KD29C] [ID:nB4E7K9007]
"The market is still very much focused on the euro. We are back to watching headlines and it seems like there are more rumors than fact," said David Watt, senior currency strategist, at RBC Capital Markets in Toronto.
"In general, it's still a very cautious backdrop and it's hard to see a sustained back-up in the euro and even for that matter, a sustained back-up in the European stock markets," he added.
The euro
Markets priced in the likelihood of default. Reuters calculations based on Markit credit default swap prices put the probability of a Greek default at 90 percent. Greek two-year bond yields
Despite the solid equity gains, some investors said prices were still poised to fall further, with some pointing to the lows of the financial crisis as possible.
"The question is not 'if' indexes will revisit March 2009 lows, but 'when,'" said Vincent Ganne, technical analyst at TradingSat. "Is it going to happen in the next two weeks or in December? Hard to say."
MSCI's all-country world equity index <.MIWD00000PUS> rose 0.9 percent and Wall Street rebounded.
The Dow Jones industrial average <.DJI> closed up 44.73 points, or 0.40 percent, at 11,105.85. The Standard & Poor's 500 Index <.SPX> rose 10.60 points, or 0.91 percent, at 1,172.87. The Nasdaq Composite Index <.IXIC> gained 37.06 points, or 1.49 percent, at 2,532.15.
Consumer staple shares registered the biggest declines,
weighed by Best Buy Co Inc
Oracle Corp
Brian Battle, a trader at Performance Trust Capital Partners in Chicago, said stocks were being pulled by those who see them as overvalued given the economy is on the cusp of recession, and those who say stocks are historically cheap.
"We're going to wrestle around and remain range-bound until we figure out which theory is true," Battle said.
European stocks rallied from two-year lows to end higher, although the sharp rise in Italy's borrowing costs and simmering fears of a Greek default kept gains in check. [ID:nP6E7KC093]
The FTSEurofirst 300 <.FTEU3> index of top European shares closed up 1.06 percent at 900.43.
Banks in Europe bounced back in what was mostly seen as a
technical rally, with Societe Generale
U.S. Treasury prices retreated as stocks gained and weakened demand for safe-haven U.S. government debt. Earlier in Europe, yields on benchmark German Bunds
The benchmark 10-year U.S. Treasury note
Brent crude prices slipped, dragged down by a downward revision to the International Energy Agency's forecast for growth in global oil consumption due to the struggling economy and so-called spread selling. [ID:nL5E7KD1VP]
Traders extended a deep sell-off in the premium of Brent to U.S. crude futures
ICE Brent crude for October delivery
U.S. October crude
Spot gold prices