NEW YORK (Reuters) - Stocks worldwide rose on Wednesday on signs a resolution of Greece's debt crisis appeared in hand, but U.S. stocks later dropped from earlier levels after the prime minister called on Greeks to reject a bailout deal with international creditors.
Prime Minister Alexis Tsipras urged citizens to vote "No" in a referendum on Sunday on the bailout, in a defiant address that dispelled speculation he was dialing back his combative stance.
A "No" vote would not be tantamount to a rejection of Europe or the euro, Tsipras said. Instead, it would step up pressure on creditors to give Greece what it considered an economically viable agreement.
Major European stock indexes earlier surged 2 percent or more, with Germany's DAX .GDAXI gaining more than 3 percent, after Tsipras told international creditors that Athens could accept the bailout offer if some conditions were changed. Later, he told Greeks that the country was being "blackmailed."
"People thought he was ready to throw in the towel; obviously that's not going to be the case," said Robbert van Batenberg, director of market strategy at Societe Generale in New York.
"One line of thinking says with a 'No' vote in hand Tsipras can tell creditors that, 'Look, the people don't want this. The people want to protect their pensions. You got to give me a better deal.'"
The pan-European FTSEurofirst 300 index .FTEU3 rose 1.6 percent to close at 1,533.89, while Germany's DAX gained 2.2 percent. MSCI's all-country equities world index .MIWD00000PUS rose 0.47 percent, after earlier gains of almost 1 percent. MSCI's emerging markets index .MSCIEF retreated, falling 0.26 percent.
Stocks on Wall Street fell from earlier highs. The Dow Jones industrial average .DJI closed up 138.4 points, or 0.79 percent, to 17,757.91. The S&P 500 .SPX gained 14.31 points, or 0.69 percent, to 2,077.42, and the Nasdaq Composite .IXIC added 26.26 points, or 0.53 percent, to 5,013.12.
Prices of battered bonds from southern European countries rose, while safe-haven debt such as U.S. Treasuries and German bunds fell. The euro was lower after Greece's overnight default on its International Monetary Fund loans weakened the single currency by about half a percent.
The benchmark 10-year Treasury note US10YT=RR fell 25/32 in price to yield 2.4237 percent. German 10-year Bund yields DE10YT=TWEB were up at 0.815 percent.
Yields on bonds issued by Italy, Spain and Portugal, the countries most vulnerable to contagion from Greece's debt crisis, all fell.
The dollar gained on news that U.S. private employers increased hiring in June, a further sign of an improving labor market that adds weight to the notion the Federal Reserve will raise interest rates later this year.
The ADP National Employment Report showed 237,000 private-sector jobs were created last month, handily exceeding expectations of 218,000 new jobs, according to a Reuters survey of economists.
The ADP data comes a day before the U.S. Labor Department's more comprehensive non-farm payrolls report on Thursday, which is expected to show 230,000 new jobs were created last month, down from 280,000 in May.
"There's potential for an upside surprise in payrolls given the read we got from ADP," said Mark McCormick, currency strategist at Credit Agricole in New York. "The fundamentals are supportive of broad dollar strength, particularly against the euro."
The dollar was up 0.72 percent against the euro EUR=, to $1.1055, and the greenback gained 0.51 percent against the yen JPY=, to 123.12.
Oil prices slumped after U.S. crude stockpiles increased for the first rise in more than two months, with U.S. crude falling the most in a single day since early April.
Brent crude LCOc1 settled down $1.58 at $62.01 a barrel, and U.S. crude CLc1 fell $2.51 to settle at $56.96 a barrel.
The market was further affected by the dollar's rally on Greece's default, Iran's renewed efforts to reach a nuclear deal with the West to freely resume its crude exports, and signs that output by the Organization of Petroleum Exporting Countries is at three-year highs.
"The overall feel is that we have more than enough crude and the market could be in a bearish tilt hereon with the Greece and Iran factors in play," said Tariq Zahir, oil trader and managing member at Tyche Capital Advisors in Laurel Hollow, New York.
Editing by W Simon, Chizu Nomiyama, Leslie Adler and Steve Orlofsky