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NEW YORK (Reuters) - U.S. stocks hovered near all-time highs on Monday, held down by a sharp drop in crude oil prices, while European shares rallied to seven-year highs on last week's conditional financial rescue for Greece.
Yields on low-rated euro zone government bonds fell on relief an agreement was reached late Friday as it eased concerns that Greece would leave the euro, even though it merely buys time for Athens to seek a long-term deal with Europe.
The Pan-European FTSEurofirst 300 index .FTEU3 surged to highs last seen in December 2007 and Germany's DAX equity index .GDAXI set a record closing high, pushing gains so far this year to almost 14 percent.
Britain's FTSE 100 index .FTSE was the only major index in Europe to close lower, albeit a whisker off break-even, after HSBC (HSBA.L) reported a 17 percent drop in annual profit. The bank's shares fell 4.6 percent.
Oil weakened on rising inventories, which have pressured crude prices and hit U.S. energy shares, a major component of the U.S. benchmark S&P 500 index. The S&P 500 and the Dow industrials closed at all-time highs on Friday.
"Crude continues to be very weak. But you can argue that as long as it stabilizes and doesn't completely plunge, it's probably a positive, so it's really going to depend on earnings and macro news in the market right now," said Uri Landesman, president of Platinum Partners in New York.
The Nasdaq rose, marking nine straight sessions of gains, while the S&P posted a slight loss. Still, some investors wonder how much U.S. equities can rise given their valuations.
In the sixth year of both an economic cycle and bull market, companies are finding it more difficult to grow revenues and earnings, said Scott Clemons, chief investment strategist for Brown Brothers Harriman in New York.
"That's put a cap on market activity," Clemons said.
The Dow Jones industrial average .DJI closed down 23.6 points, or 0.13 percent, to 18,116.84. The S&P 500 .SPX fell 0.64 points, or 0.03 percent, to 2,109.66 while the Nasdaq Composite .IXIC rose 5.01 points, or 0.1 percent, to 4,960.97.
MSCI's all-country world index .MIWD00000PUS, a measure of stock performance in 46 countries, eked out a 0.1 percent gain after spending most of the session lower, while the FTSEurofirst 300 index .FTEU3 closed up 0.65 percent at 1,535.08.
Brent crude LCOc1 fell $1.32 to settle at $58.90 a barrel. Benchmark U.S. WTI crude CLc1 for April delivery settled down $1.36 at $49.45.
The dollar rose against most currencies as investors await Federal Reserve Chair Janet Yellen's testimony on Tuesday to a Senate panel for clues on when the U.S. central bank will boost interest rates.
The euro retreated on lingering doubts over whether the Greek accord will lead to a deal to keep Athens solvent.
"The Greece debt deal has been mildly positive, but it's difficult to determine what is the next move yet before Yellen's testimony tomorrow," said Lane Newman, director of foreign exchange at ING Capital Markets in New York.
The dollar index .DXY, a measure of the greenback versus currencies of major U.S. trading partners, rose 0.34 percent to 94.576.
The euro was down 0.44 percent against the dollar at $1.1328 EUR=EBS. The dollar dipped 0.17 percent against the yen, last trading at 118.81 yen JPY=EBS.
U.S. Treasuries prices rose on expectations Yellen will take a dovish tone on monetary policy and as traders viewed the latest drop in oil prices as a sign of deflation that will underpin a cautious Fed.
"We're seeing abating inflationary trends," said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago. "It makes it more difficult for the Fed to argue that they should be hiking rates."
Benchmark 10-year notes US10YT=RR rose 21/32 in price to yield 2.0574 percent.
Reporting by Herbert Lash; Editing by Dan Grebler and Andrew Hay