Stocks, euro rally fizzle on Greece

The trading floor is pictured at the Frankfurt stock exchange January 16, 2012.

NEW YORK (Reuters) - A rally in world stocks and the euro lost steam on Friday as investors awaited a Greek debt restructuring deal aimed at avoiding a disorderly default, while Wall Street stocks were mixed after disappointing earnings from Google and GE.

The S&P 500 snapped a run-up from the start of the week that had given the bellweather index a 2 percent gain for its best three-day rise in a month.

European stocks edged lower after a four-day rally, while world equities were flat, though supported by stronger Asian markets.

The euro slipped from a two-week high against the dollar as investors took profits from the common currency's rally this week -- its best weekly run since October.

On Wall Street, Google Inc (GOOG.O) was a drag after the No. 1 Internet search firm missed expectations for quarterly profit and revenue due to declining search advertising rates. General Electric Co (GE.N) also fell as the largest U.S. conglomerate missed revenue estimates and reported roughly flat profits from continuing operations.

But a strong outlook from IBM (IBM.N) and decent results from Intel Corp (INTC.O) and Microsoft Corp (MSFT.O) helped limit losses.

However, with a big week of earnings ahead, investors were reluctant to rush to judgment.

"Any trip-up in earnings could bring a short-term pullback, which is what we're seeing with GE and Google," said Lawrence Glazer, managing partner at Mayflower Advisors in Boston.

"The valuations in an old-tech name like IBM support more appreciation, while a higher-growth name like Google had higher expectations to outshine."

In late trading, the Dow Jones industrial average .DJI was up 56.04 points, or 0.44 percent, at 12,680.02. The Standard & Poor's 500 Index .SPX was down 3.34 points, or 0.25 percent, at 1,311.16. The Nasdaq Composite Index .IXIC was down 8.29 points, or 0.30 percent, at 2,780.04.

The benchmark 10-year U.S. Treasury note down 13/32, with the yield at 2.0281 percent.

Google fell 8 percent to below $590 while GE lost more than 1 percent to trade below $19.

Global stocks tracked by the MSCI All-World index .MIWD00000PUS were up 0.2 percent, helped by a run-up in Japanese and other Asian stocks.

The FTSEurofirst 300 .FTEU3 index of top European shares settled down 0.3 percent. The Euro STOXX 50 volatility index

.V2TX, Europe's 'fear gauge' known as the VSTOXX, dropped to 25.03, a level not seen since early August, signaling a rise in investor appetite for risk.

"Risk aversion is declining, and the wild swings between 'risk on' and 'risk off' trades that we've seen over the past year should slowly fade away sometime this year," said Franck Nicolas, head of global asset allocation at Natixis AM, which has 525 billion euros ($677 billion) under management.

The euro slipped 0.2 percent, falling from a two-week high against the dollar and hovering at below $1.2940.

For the week, however, it was up nearly 2.5 percent for its biggest week in over two months, helped by solid bond auctions in Spain and France on Thursday that boosted investor appetite for European risk assets.

German Bund futures prices fell one point, dragged down by mounting expectation of an imminent deal between Greece and its private bondholders over a bond swap deal that would prevent the country from sinking into a chaotic default and ease the euro zone's debt crisis.

Greece was closing in on an initial deal with private bond holders on Friday that would prevent it from tumbling into a chaotic default but lose investors up to 70 percent of the loans they have given to Athens.

"There are encouraging signs the Greek PSI (private sector involvement) deal may be achieved soon, possibly even today and that's likely to keep Bunds on the defensive," said Nick Stamenkovic, rate strategist at RIA Capital Markets, who labeled Greece's fiscal metrics "horrible" and its growth picture "pretty dire."

"It will cause some relief in the markets but there are still problems ahead for Greece," he added.

The dollar .DXY was flat against a basket of major currencies.

In commodities trading, U.S. crude oil was down 1.8 percent to below $99 per barrel, while copper futures in London closed down 1.6 percent at $8,225 per tonne.