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GLOBAL MARKETS-Stocks, euro up as Greeks ready key vote

Published 06/28/2011, 04:25 PM
Updated 06/28/2011, 04:28 PM

* Brent, U.S. crude rally on Greece bets, weaker dollar

* Optimism grows Greek parliament will approve measures

* Treasuries extend losses after 5-year note auction (Updates to U.S. market close)

By Rodrigo Campos

NEW YORK, June 28 (Reuters) - World stocks jumped about 1 percent and the euro rose on Tuesday on hopes an impending vote on Greece's budget and a France-led plan to roll over Greek debt will save Greece from what would be the first sovereign default in the euro zone.

As investors flocked to riskier assets like equities and commodities, the Treasury's five-year note auction faced lower demand, which sent U.S. debt prices slumping.

U.S. and European stocks rose as optimism grew that the Greek parliament would adopt a fiscal austerity plan needed in exchange for critical financial aid from international lenders, despite violent street protests in Athens. For details, see [ID:nL6E7HS2BG]

"The negative reaction that you're getting from the public is a sign that the parliament is likely to vote in favor of the austerity plan," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

In Athens, hooded youths throwing stones and wielding sticks set fire to garbage bins and a telecoms truck outside Parliament and riot police fired tear gas to disperse them as the Parliament prepared to vote on Wednesday and Thursday on the controversial austerity plan. Trade unions began a 48-hour strike against the EU/IMF-imposed measures. [ID:nLDE75R0FD]

"All eyes will continue to be on situation in Europe as we go into the second half of the week," said Ciaran O'Kelly, head of U.S. equity trading at Nomura Securities International in New York. "The world is watching events in Greece unfold over the next 48 hours."

On Wall Street, the Dow Jones industrial average <.DJI> rose 145.13 points, or 1.21 percent, to close at 12,188.69. The S&P 500 <.SPX> gained 16.57 points, or 1.29 percent, to 1,296.67. The Nasdaq Composite Index <.IXIC> added 41.03 points, or 1.53 percent, to 2,729.31.

In an advance indication of earnings season, Nike Inc surged 10.1 percent to $89.90 a day after reporting fourth-quarter earnings that beat expectations, while orders suggested robust strength for the future. [ID:nN1E75Q1LR]

Global shares as measured by MSCI's all-country world index <.MIWD00000PUS> gained 1.1 percent, while U.S. dollar-denominated Nikkei futures rose 1.1 percent.

The news from Europe lifted the euro against the U.S. dollar as it reduced the chances of the first sovereign default in the 17-member euro zone. Gains, however, are expected to be limited as Greece's access to bailout funds may only delay an eventual default given the size its debt burden, analysts said.

"We are getting more and more bearish on the euro given there are larger issues at stake here apart from the Greek austerity vote," said Neal Mellor, currency strategist at Bank of New York Mellon.

Hopes on the Greek resolution and the weaker greenback boosted commodity prices, including crude oil. ICE Brent crude for August settled up $2.79 at $108.78 a barrel. U.S. crude added $2.28 to settle at $92.89 a barrel.

Copper gained 0.9 percent.

U.S. Treasury debt prices extended losses after a $35 billion five-year note auction "tailed," with its high yield significantly above the open market yield at the same time.

"Today's auction was another disappointment that should cast a pall over Treasuries for some sessions to come," said William O'Donnell, head of Treasury strategy at RBS Securities in Stamford, Connecticut, in a note to clients after the auction.

The hopes for a resolution to Greece's problems also cut any safety bid for Treasuries.

The benchmark 10-year U.S. Treasury note was down 31/32 in price to yield 3.04 percent.

The Bund future hit a session low of 126.16 and last traded down 72 ticks on the day at 126.18.

The package to be voted on by Greek lawmakers includes spending cuts, tax increases and privatizations required by international lenders as a price for further financial aid.

Euro zone banks and insurers are considering a plan outlined by French President Nicolas Sarkozy on Monday under which private bondholders would reinvest half of the proceeds of maturing Greek debt in new 30-year bonds paying 5.5 percent interest plus a bonus linked to Greece's GDP growth rate.

Rudy Narvas, senior economist at Societe Generale in New York, said investors should get used to jitters over debt problems in Greece and other European countries like Portugal as they are not going anywhere, at least for a while.

"Right now we have got a Band-Aid with the current package and also the French plan, which is on the table for banks," he said, "but in the end what it really comes down to is, this is a patch, and we have to look forward to the same thing occurring possibly in three months." (Reporting by Emily Flitter, Steven C. Johnson, Chris Reese, Wanfeng Zhou and Edward Krudy; Writing by Rodrigo Campos; Editing by Leslie Adler)

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