LONDON (Reuters) - The euro dipped and a share market rally ran out steam Wednesday on signs euro zone officials might delay Greece's next rescue package, while still avoiding a disorderly default.
The single currency eased 0.3 percent, falling back below $1.31 after EU sources said euro zone finance ministers were not satisfied all Greece's political parties were committed to fresh austerity measures and might withhold bailout funds until April.
European shares shed some of their gains though U.S. futures still pointed to a higher opening on Wall Street, with the release of January factory output and capacity utilization figures later in the day expected to add to signs of economic improvement.
Riskier assets like equities had resumed their rally earlier Wednesday on hopes a growing flood of money from major central banks will support growth as data showed the euro zone's debt-laden economy headed - as expected - for a recession.
Sentiment was also supported by promises by Chinese leaders to keep investing in euro zone debt.
The euro fell to $1.3084, retreating from a session high of $1.3191 and well off the February 9 peak of $1.3322.
Economic output in the 17-nation euro area fell a widely-expected 0.3 percent in the last three months of 2011 compared to the previous quarter, and is likely to contract further in the current quarter to mark its second recession in three years.
But the French economy posted a surprise expansion in the last quarter of 2011 and a slowdown in Europe's biggest economy, Germany, was not quite as bad as expected.
"Activity remains close to very weak levels but at least the (European) economy doesn't seem to be on a free-fall," said Annalisa Piazza, market economist at Newedge Strategy.
Marco Valli, chief euro zone economist at UniCredit Research noted that forward-looking indicators like surveys of purchasing managers show that the economy is likely to stabilize or resume moderate expansion in the first three months of 2012.
"We think that the fourth quarter of 2011 was the low point in the euro zone business cycle."
Euro zone & US GDP last 10 years: link.reuters.com/xed64s
Euro zone crisis in graphics: r.reuters.com/hyb65p
Since late December the European Central Bank has moved to supply banks with large amounts of cheap money, the U.S. Federal Reserve has committed to keeping rates low until 2014 and the Bank of Japan and the Bank of England have announced further policy easing measures to help the global economy recover.
The moves have underpinned demand for equities and helped lift the MSCI world equity index .MIWD00000PUS by over nine percent for the year to date.
The FTSEurofirst index of top European companies .FTEU3 was up 0.9 percent at 1,079.13 points Wednesday while, helped by gains in Asia, the MSCI global index was up 0.6 percent.
The gains in Asia came as central bank governor Zhou Xiaochuan reiterated commitments by Premier Wen Jiabao that China was ready to play a bigger role in solving Europe's debt problems.
Demand for stocks and riskier currencies, however, remains tempered by the ongoing risks from the euro zone debt crisis.
"(The euro zone) GDP figures were pretty much as expected so there's no huge surprise there was no massive market movement," said Nick Beecroft, senior markets consultant at Saxo Bank.
"But they are part of what will become an important story in the second quarter as reality starts to kick in terms of collapsing growth in the euro zone, which in itself hampers efforts to improve government deficits."
In Greece, the conservative New Democracy party said its leader, Antonis Samaras, had sent a letter to the European Union and IMF committing himself to implementing a new austerity package, which was a key condition to secure approval of a 130 billion euro bailout.
The euro zone ministers are next due to meet Monday, but Greece has said it must initiate a debt swap deal with private sector bondholders by Friday if it is to meet a March 20 for 14.5 billion euros in debt repayments.
Meanwhile oil prices gained over $2 a barrel Wednesday, after Iranian state TV said Iran had stopped exports to six European states in retaliation for European Union sanctions on the Islamic state, adding to supply concerns.
Brent crude was up 65 cents at $118.00 a barrel, having traded as high as $118.30 earlier in the session. U.S. crude rose 87 cents to $101.61.
Additional reporting by Nia Williams; editing by Patrick Graham, John Stonestreet