European Shares Fall as Traders Eye Greek Talks
A rally for European stocks and the euro ran out of steam on Friday, with markets focused on debt talks between Greece and its private creditors that may prove the trigger for the next leg of the euro zone's debt crisis.
German Bund futures and the cost of insuring Spanish and Italian debt against default fell as expectations a deal would be reached grew, albeit cautiously.
After a positive week of news around the debt crisis - several successful debt auctions and signs of further action from policymakers - the crucial talks in Athens, designed to help avoid a chaotic default, looked to be progressing.
Two days into the restarted talks, which had broken down over a disagreement over what return the debt-ravaged country would offer on new debt, Greece's finance minister said the atmosphere of the discussions was good.
Those comments helped underpin a reversal in the flood of demand for safe-haven Bunds, although the lack of firm news kept markets tense for a move in either direction.
"There are encouraging signs the Greek PSI (private sector involvement) deal may be achieved soon, possibly even today and that's likely to keep Bunds on the defensive," said Nick Stamenkovic, a rate strategist at RIA Capital Markets.
"It will cause some relief in the markets but there are still problems ahead for Greece," he added, calling the country's fiscal metrics "horrible" and its growth picture "pretty dire".
Bund futures fell as much as 42 ticks in early trade to 138.54, a near 2-1/2 week low, before trimming losses and to trade 30 ticks lower at the day by mid-morning.
Five-year Italian credit default swaps fell 11 basis points to 469 bps, according to Markit, while the Spanish equivalent shed 8 bps to 375 bps.
The cost of insuring debt from France and Austria, both of which recently lost their triple-A rating from Standard & Poor's, also fell.
EURO, STOCKS
The euro fell from a two-week high against the dollar as profit takers emerged and was down 0.5 percent at $1.2903. Some felt a test of $1.30 was still likely.
"This is not only about Greece, we have definitely had a risk-on move and we know there are a lot of euro/dollar shorts in the market. I expect we will breach $1.30 today but run out of steam if the rally goes much higher," said Lutz Karpowitz, currency analyst at Commerzbank.
The dollar against a basket of major currencies was slightly firmer, up 0.2 percent.
European stocks edged higher initially before turning negative, after rallying for four straight days, with the FTSEurofirst 300 down 0.2 percent.
Basic resources stocks were the top sectoral fallers after sluggish Chinese factory data contributed to a selloff in commodity prices, with copper down 0.9 percent and other industrial metals also lower.
Technicals also played a role, as the scale of the recent gains -- up 2.4 percent in the week to date -- took stocks near to overbought territory.
"We are right at the top of the range and will face technical pressure. I expect to see selling," said Joe Rundle, head of trading at ETX Capital.
Emerging market stocks were higher following on from a strong session in Asia, with Japan's Nikkei index closing at its highest in over two months and Asia-Pacific shares outside Japan up 0.6 percent.
Elsewhere among the commodities, U.S. crude oil was down 0.9 percent and gold was lower at $1,647.60 an ounce.