GLOBAL MARKETS-New fears on Greece dent euro; commodities bounce

* Europe focuses on talk of revamped Greek debt plan

* European stocks fall; Wall St gains with commodities

* Commodities recover after a week's battering (Adds details, quote, updates prices)

By Leah Schnurr

NEW YORK, May 9 (Reuters) - New-found worries that Greece may be forced to restructure its debt dragged the euro lower on Monday and took a toll on European equities, while commodities staged a recovery after last week's rout.

After struggling to push higher throughout the morning, U.S. stocks rose to session highs by midday as resource-related shares mounted strong gains on the higher commodities prices, overshadowing fears of the European debt crisis.

The European Union said it was talking about lowering interest rates on the bailout loans extended to Greece and Ireland in order to prevent a restructuring, but comments by ratings agency Standard & Poor's on Monday that more radical measures would be needed fueled investors' risk aversion. For details, see [ID:nLDE7480MK]

S&P cut Greece's credit rating to B from BB-minus on Monday, citing an increased risk of a debt restructuring and saying that a principle reduction of 50 percent or more on Greek debt may be needed. [ID:nLDE7481EG]

Yields on Greek and Portuguese debt rose, with five-year Greek paper offering around 22 percent.

Falls in European bank stocks led European equities lower and the euro fell for the fourth day in a row. The currency earlier had rebounded from last week's losses.

The euro volatility "confirms the whole market skittishness about the viability of the peripheral economies," said Boris Schlossberg, head of research at GFT Forex. "More draconian measures will be necessary to stabilize the situation with a broader solution as Ireland and Portugal will want more favorable terms if Greece gets them."

CLOUD ON THE MARKET

The euro was down 0.3 percent at $1.4267 , the lowest since April 19, bringing its losses over the last four sessions to 3.8 percent, according to Reuters data, the biggest four-day drop since May 2010.

The FTSEurofirst 300 stock index <.FTEU3> provisionally ended down 0.4 percent. Shares of banks, which are seen as exposed through Greek bond holdings, suffered.

"Generally the growth is insufficient to finance the cost of the burden of the debt for Greece, Ireland and Portugal. If Greece restructures its debt, people will start to ask where next," said Andrea Williams, who manages 1.3 billion pounds in assets for Royal London Asset Management.

Banks were among the heaviest losers on the back of concerns about potential losses for private bondholders in the event of debt restructuring, with the STOXX Europe 600 banking index .SX7P down 1.2 percent.

The MSCI all-country world stock index <.MIWD00000PUS> was down 0.4 percent.

The Dow Jones industrial average <.DJI> gained 58.58 points, or 0.46 percent, to 12,697.32. The Standard & Poor's 500 Index <.SPX> added 6.61 points, or 0.49 percent, to 1,346.81. The Nasdaq Composite Index <.IXIC> climbed 17.77 points, or 0.63 percent, to 2,845.33.

"Europe continues to be a regular cloud on the market," inserting caution in the market's bullish mood, said Christian Magoon, CEO of Magoon Capital in Lisle, Illinois.

The energy and materials sectors were the best performers on the S&P 500 as the Reuters/Jefferies commodities index <.CRB> jumped 1.7 percent.

While few market players think Greece is likely to drop out of the euro, the European Union is under pressure to renegotiate its financial bailouts of Ireland and Greece, with an Irish minister saying any concessions given to Athens should mean better terms for Dublin as well. [ID:nLDE7470E8]

"The Greek situation is like a slow motion car crash. The politicians know they have to dip into the pockets to find a solution to the problems facing Greece," said Jeremy Stretch head of currency strategy at CIBC World Markets in London.

The euro was down 0.2 percent against the yen at 115.15 yen after earlier falling to its lowest since late March.

The dollar rose 0.1 percent against the yen to 80.73 yen , off last week's seven-week low.

Commodity currencies were supported by a rebound in oil prices, after a plunge in oil, silver and other commodities last week.

The Australian dollar rose 0.4 percent to $1.0727 , extending gains on Friday after the Australian central bank said rate hikes would be needed in future to contain inflation.

Bargain hunting helped oil prices rebound with Brent crude futures up more than $3 at $112.67 a barrel, following last week's 12.8 percent slump. Spot silver rose to $36.95 after bearing the brunt of last week's commodity sell-off.

"We went through a pretty hefty sell-off for all markets," said Tony Machacek, an oil trader at Bache Commodities. "It smacked of funds getting sell-stops triggered. Now that long liquidation has been done, everything seems to be stabilizing." (Additional reporting by Angela Moon and Nick Olivari in New York and Jeremy Gaunt and Claire Milhench in London; editing by Leslie Adler)