Greece optimism lifts world stocks but strong dollar tempers euro

Pan-European FTSEurofirst 300 index rises 0.8%, hits three-week high

Signs that a deal could be at hand to stave off a Greek default lifted global shares on Tuesday and cut borrowing costs for euro zone countries seen as most vulnerable to the protracted crisis.

However, with some euro zone leaders warning much work was still needed to seal an agreement between Greece and its creditors, the euro fell against a dollar lifted by further evidence of US economic strength.

"Still no Greek deal though, but plenty of optimism that we are edging closer. This comes from experience, with years of similar happenings resulting in deals at the last minute," Mike van Dulken, head of research at Accendo Markets, said.

Greece presented new proposals on Monday that euro zone leaders welcomed as a basis for a possible agreement to unlock aid and avert default and a potential exit from the euro.

European shares opened strongly on Tuesday, following gains in Asia and on Wall Street that were, at least in part, attributed to optimism the long-standing crisis that had sapped confidence in many European assets could be close to resolution.

The pan-European FTSEurofirst 300 index rose 0.8%, hitting a three-week high and adding to gains of more than 2% on Monday. Germany's CAC 40 index rose 0.7% and Germany's DAX 0.8%. Greek stocks rose 2.7%.

Adding to the positive sentiment, data on factory and service sector activity in France, Germany and the euro zone as a whole beat forecasts, according to Markit preliminary June purchasing manager indexes.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.8%, while Japan's Nikkei jumped 1.9% to a fresh 15-year high.

China's CSI 300 index of the biggest listed companies in Shanghai and Shenzhen closed up 3.2%.

Chinese factory activity shows signs of stabilising in June. The HSBC/Markit flash manufacturing PMI edged up to a three-month high of 49.6 from 49.2, still below the 50 mark that separates expansion from contraction.

In the foreign exchange markets, the euro was down 0.7% against a broadly stronger dollar.

"If you bought the euro on those headlines last night, you come in this morning and realise it has fallen and there are still a lot of problems in the details," said Adam Myers, senior FX strategist with Credit Agricole in London.

Data on Monday showing sales of existing US homes rose to a 5-1/2-year high in May, keeping the Federal Reserve on track to raise interest rates later this year, lifted the dollar, which was 0.5% higher against a basket of currencies.

The euro last traded at $1.1263, having hit $1.1440 on Thursday. The yen was down 0.2% at 123.58 per dollar.

TREASURY YIELDS

The US housing data, and the progress on Greece, pushed US Treasury yields higher. Ten-year yields were at 2.39%, up from 2.36% in New York.

Low-risk German 10-year yields were up 2 basis points to 0.91%, their highest in almost two weeks.

Yields on 10-year bonds from Italy and Spain, two countries whose debt markets have experienced some contagion from Greece in recent weeks, were down 2.9 and 1.8 bps at 2.12 and 2.08% respectively, their lowest in almost three weeks.

Oil prices dropped as the prospect of oversupply and the PMI data from China and Japan weighed on the market. Brent crude was flat at $63.34 a barrel.

Gold held on to losses as more positive sentiment on Greece and stronger equities reduced its safe-haven appeal. Spot gold was last steady at $1,185.50 an ounce.