LONDON (Reuters) - Stocks clawed back some ground on Friday after France and Germany said a comprehensive euro zone debt deal was on its way, if a little late, although a subdued euro and choppy German bonds showed not everyone was convinced.
Book-squaring before a weekend of euro zone crisis talks would likely govern moves across asset classes, traders said, while U.S. stock futures pointed to early gains on Wall Street and Treasuries were flat.
The long-running debt saga was meant to be resolved at a meeting of regional leaders on Sunday, but disagreement over the make-up of the sovereign rescue fund, the EFSF, stalled talks and sparked a selloff in riskier assets on Thursday.
A communique from French President Nicolas Sarkozy and German Chancellor Angela Merkel, following the European close, said the wide-ranging plan would now be announced no later than Wednesday.
"The enthusiasm, bordering on euphoria, that appeared to have swept up risk assets early in the week has now entirely evaporated and investors appear primed for a critical weekend almost expecting to be disappointed," Altium Securities said in a note.
The need to reach a debt deal, and quickly, was reflected in German business sentiment data showing a fall for the fourth month in a row, the latest sputtering in Europe's growth engine.
At 1006 GMT, the MSCI world equity index .MIWD00000PUS was up 0.4 percent while the FTSEurofirst 300 .FTEU3 index of leading European blue-chips was up 0.6 percent, in a bounce from its 1.4 percent selloff in the previous session.
While shares recovered some of their lost ground, currency traders proved less amenable to the delay, extending their move from the previous session with many investors unwilling to go long.
The euro edged higher, then fell back before trading flat against the dollar by 1007 GMT at 1.3768, and it fell against the yen and Swiss franc. The dollar, meanwhile, was flat against a basket of currencies .DXY.
"The euro is all being driven by short term players with longer term investors like asset managers all holding short positions and on the sidelines," said Manuel Oliveri, currency strategist at UBS in Zurich.
Morgan Stanley, meanwhile, advised clients to stay short the euro ahead of the weekend's EU summit and lower stops -- currently at $1.3845 -- further next week to protect profits.
Bund futures were skittish, reversing course several times to be down 0.1 percent at 135.26 by 1009 GMT.
"I think there is an element of disappointment," said one trader, pointing to the delay. "So today, (we are) not really expecting too much risk to be placed on by clients, instead probably some squaring of positions and taking off of risk into the weekend."
Among the major commodities, Brent crude oil was marginally weaker but still holding above $109 a barrel, in rangebound trade ahead of the European leaders' summit, while U.S. crude oil was slightly firmer.
After heavy falls in the previous session, base metals including copper and zinc both staged a partial recovery.
Additional reporting by Anirban Nag and Ana Nicolaci da Costa in London; Editing by Catherine Evans/Ruth Pitchford