China bounce ends stocks' five-day losing streak, commodities surge

By Marc Jones

LONDON (Reuters) - World stocks snapped a five-day losing streak on Thursday, as Beijing halted a rout in Chinese stocks and Europe revived hopes that Greece could be kept in the euro currency union.

Wall Street started more than 1.2 percent higher having been dragged into the red for the year on Wednesday by China's market crash, cliff-hanger talks on Greece and a glitch on the New York Stock Exchange.

European shares had raced up over 2 percent as Prime Minister Alexis Tsipras rushed to finalise a package of Greek tax hikes and pension reforms needed to win a new aid lifeline.

Without the money it will have to print another currency, probably leading to its exit from the euro.

Irish Finance Minister Michael Noonan said he saw a better than 50 percent chance of a deal being reached by Sunday's deadline following a "distinct change of mood" in recent days.

"The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors. Only then will we have a win-win situation," added European Council President Donald Tusk in Luxembourg.

Hopes of an agreement, which had looked all but doomed a few days ago, as well as more traditional market support from German export data, helped the DAX (GDAXI), France's CAC 40 (GDAXI) and bourses in Italy (FCHI), Spain (IBEX) and Portugal (PSI20) jump between 2.1-3.4 percent.

Southern euro zone government bonds also rallied in debt markets although investors were reluctant to make too big a move given recent failures to reach a Greek deal.

"The midnight deadline for Europe seems a long way away," said Nick Parsons, global head of forex at National Australia Bank in London.

"We have a traditional risk-on mood, but there is a general wariness that is crimping investor participation in the market. The order flow really is very thin," he added.

Chinese markets boosted the global mood, pulling out of their recent dive. The main stock index (CSI300) rose 6.4 percent, almost as much as it had fallen the previous day, after the securities regulator ordered shareholders with stakes of more than 5 percent not to sell for the next six months.

In relief throughout Asia, MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) rose 1.8 percent and the main emerging markets index (MIAPJ0000PUS) scored its best gain since January.

COMMODITY COMFORT

Europe's mining and metals stocks (SXPP), heavily dependent on China's fortunes, initially led the charge in the pan-European FTSEurofirst 300 (FTEU3) before bank shares overtook with a 3.3 percent leap as the market reassessed Greek events.

Greek Prime Minister Alexis Tsipras has until midnight to propose spending-cut plans that will convince the euro zone to give Athens a three-year loan to rescue it from bankruptcy.

But even if it does leave the euro, the European Central Bank has made clear it is ready to jump in to limit any fallout.

"We can use a wide range of non-standard monetary policy measures and close cooperation with other central banks. We are prepared to implement these capabilities if needed," Ardo Hansson, Estonia's ECB member, said in a newspaper interview.

The rebound in China sapped this week's gains by the Japanese yen , which tends to gain when markets turn risk-averse, and helped boost uneasy commodity markets.

The dollar (DXY) meanwhile had been softened by some caution in Wednesday's Fed's minutes. A half-decent dollar recovery in Europe was given another tap on the head by the highest unemployment claims figures since February.

"Many participants emphasized that, in order to determine that the criteria for beginning policy normalization had been met, they would need additional information indicating that economic growth was strengthening, that labor market conditions were continuing to improve, and that inflation was moving back toward the Committee's objective," they said.

U.S. crude and Brent both surged 3.5 percent as their biggest gain since late May cut their weekly losses significantly to leave them at $53.46 and $59.10 a barrel respectively.

The Australian dollar, often used in proxy China trades, gained 0.3 percent to $0.7453 . Copper on the London Metal Exchange rose 2 percent to $5,635 a tonne after hitting a six-year trough of $5,240 a tonne on Wednesday.

A bounce by iron ore futures < DCIOcv1> in China pointed was matched by rebound for benchmark spot iron <.IO62-CNI=SI> to $48 having from a decade-low $45 a tonne overnight.

Oil markets were also watching talks on a potential nuclear deal with Iran that could ease its long-running sanctions.

Iran has offered "constructive solutions," the Iranian Students News Agency (ISNA) reported on Wednesday, but Western officials suggested they had heard nothing new from Tehran.