European shares and the euro got a boost on Wednesday on talk the IMF may do more to help resolve the European debt crisis but worries over the outcome of crucial Greek debt restructuring negotiations limited any gains.
Media reports indicating that the IMF is proposing to boost its lending resources by $1 trillion reversed gains in safe-haven German government bond prices as the news encouraged buying of riskier assets.
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But the focus is on a meeting between international creditors and the Greek government later on Wednesday to resume talks that broke down last week over the interest rate Greece will offer on new bonds and a plan to enforce private investor losses.
A deal with the private sector is vital to cash-strapped Athens if it is to gain its next batch of international aid and avoid going bankrupt when 14.5 billion euros ($18.5 billion) of bond redemptions fall due in late March.
"Greek bond negotiations could trigger more euro weakness as they have to close a deal soon, before Greek debt repayments are due in March," Richard Falkenhall, currency strategist at SEB in Stockholm said.
The euro traded up to session highs of $1.2845 on the IMF reports and away from the $1.2624 low hit on Friday, its weakest rate since last August.
Analysts said European share markets were still looking for reasons to go higher after economic data from China and Germany on Tuesday encouraged hopes that the outlook was improving and prodded shares to 5-1/2-month highs.
"Global stocks are still over sold and have room to grow on further good news," said Tom Elliott, global strategist at JP Morgan Asset Management.
The concern over the euro zone's debt crisis kept the FTSEurofirst 300 index of top European shares in negative territory on Wednesday, apart from a brief gain on the IMF news, and the index was down about 0.1 percent at 1,033.60 points.
DEBT SALES KEY
Euro zone debt auctions will continue to be a major driver of investor sentiment with several governments lining up to refinance their debts this week.
Most attention will be on French and Spanish sales of bonds later in the week.
Wednesday's shorter-term offerings by Portugal and Germany were solidly placed on the back of the almost half a trillion in 3-year loans pushed into the banking system by the European Central Bank last month.
The economic data flow is lighter with the German government expected to reduce its forecast for growth to only 0.7 percent for 2012 and 1.6 percent for 2013. It had previously forecast 2012 growth of 1.0 percent.
The UK reported that the number of its people out of work rose to its highest level in more than 17 years in November, but a slowdown in benefit claims during December added to hopes the labour market downturn may be flattening.
In commodity markets Brent crude eased back below $112 on a slightly weaker dollar but precious metals held mostly steady, supported by the more positive economic data which is seen as adding to demand.