March 7, 2012 / 12:32 PM / 5 years ago

Euro, European shares stabilize as Greek outcome awaited

Traders talk in front of a screen showing an index at Madrid's Bourse February 14, 2012.Sergio Perez

LONDON (Reuters) - European shares steadied after two days of losses and the euro recovered from a 3-week low on Wednesday as markets await the outcome of the Greek debt restructuring deal, while worrying over the weaker outlook for the global economy.

U.S. stock futures pointed to a recovery on Wall St after steep declines in the previous session.

With stimulus measures from the world's major central banks mostly on hold, growth is key to supporting the recent rally in riskier assets but recent data has disappointed.

Germany announced factory orders in January posted a surprise fall as demand slumped from outside the euro zone, adding to concerns about a slowdown in Brazil, Australia and China, though these regions are still experiencing growth.

"The reality of slower growth in the BRIC countries and the continuing threats from the situation in Europe with Greece and other fiscal problems are starting to weigh on the market," Nic Brown, head of commodity research at Natixis said.

The weaker data puts the focus firmly on the strength of the U.S. economic recovery, with the release of key U.S. nonfarm payrolls due at the end of the week.

"Given the fact that we are all waiting for the Greek (debt) deal, risk appetite is unlikely to pick up much, especially given U.S. payrolls data on Friday is coming up," said Melinda Burgess, currency strategist at RBS.

Equities and commodities and growth linked currencies all suffered a major sell-off on Tuesday on worries over the growth outlook and the prospects for a successful Greek debt deal, but prices have since either steadied or recovered slightly.

The euro, which plumbed a three-week low of $1.3103 late on Tuesday, was up 0.2 percent at around $1.3136 though it remains vulnerable to any news on the Greek debt deal.

Private holders of Greek debt have until late Thursday to accept the deal to restructure their holdings, which is key to enabling Greece to secure a 130 billion euro ($170.5 billion)bailout and meet a bond repayment due on March 20.

If fewer than 75 percent of creditors accept the offer, the deal could be off, potentially plunging the euro zone back into crisis.

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Euro zone GDP and PMI: link.reuters.com/rap94s

Oil in various currencies: link.reuters.com/qun66s

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SAFE HAVENS SOUGHT

The worries over Greece kept safe-haven German government bond futures near record highs with the March contract, which expires on Thursday, at 140.24, having hit a record high of 140.48 on Tuesday, and the June contract at 138.51.

Yields on riskier euro zone debt also rose initially, wiping out some of the gains which followed the European Central Bank's massive injection of liquidity into the banking system last week, but as hopes rose that the deal might get done these yields reversed course.

Spain's 10-year bond yield reached high of 5.25 percent before easing back to trade lower on the day at 5.12 percent. The equivalent Italian yield rose to 5.15 percent before recovering to under 5.0 percent.

The search for safe-havens also benefited the giant Japanese government bond market, where prices gained across the board, sending the 5-year yield to its lowest level since October 2010.

"Expectations for more aggressive Bank of Japan easing at next week's policy meeting appear likely to be disappointed," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ, Ltd.

RISK AVERSION RISES

It is in the equity markets where fears over the growth outlook were having the biggest effect with fresh data also showing South America's largest economy Brazil expanded just 2.7 percent in 2011 after surging 7.5 percent in 2010. Quarterly growth in final three months was a scant 0.3 percent.

The three main U.S. equity indexes recorded their biggest one-day percentage drop this year on Tuesday, while a key risk measure, the CBOE Volatility index (VIX) .VIX jumped nearly 16 percent, reflecting a receding appetite for riskier assets.

The FTSE Eurofirst .FTEU3 index of top European shares edged up 0.35 percent after dropping of 2.6 percent in the previous session - its biggest daily fall in nearly four months.

A weaker session in Asia saw the MSCI world equity index .MIWD00000PUS edge lower to 322.89, but it remains up about 7.75 percent for the year to date but a week ago the index was showing gains of over 11 percent for 2012.

In commodity markets oil prices gained after China said it would boost energy imports this year while concerns persist over supply risks and Iran's nuclear program, despite the country's offer for talks with major powers.

Front-month Brent gained 57 cents to $122.69 a barrel and U.S. oil increased by 62 cents to $105.14.

Gold regained some ground on Wednesday as jewelers in Asia snapped up the metal after prices dropped 2 percent in the previous session.

Silver followed gold higher, while platinum and palladium also rebounded from Tuesday's lows.

"Basically gold and other risky assets are all being lumped together. Nobody is really looking at individual fundamentals. They are just buying the dollar and pretty much selling everything else," said Nick Trevethan, a senior commodity strategist at ANZ in Singapore. ($1 = 0.7625 euros)

Additional reporting by Jessica Mortimer; Editing by Catherine Evans and Toby Chopra

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