Euro, stocks gain on Greece bailout hopes

Traders work on the floor of the New York Stock Exchange, February 6, 2012.

NEW YORK (Reuters) - The euro hit an eight-week high against the dollar on Tuesday, helping lift stocks and commodities on signs a Greek bailout agreement was near, but the rally paused after a key meeting on Greece was postponed by a day.

The euro rallied after Greece appeared to be close to terms on a 130-billion-euro bailout. A government official said Athens was drafting a list of painful reforms to clinch a new financial package, moving it a step closer to a deal that is needed to avoid a chaotic debt default.

But a meeting of Greek political leaders was postponed until Wednesday because a draft of the bailout's terms was still not available, a party official said.

The euro at one point jumped more than 1 percent to a session high of $1.3270, hitting its highest level since December 12. After paring some gains, the euro traded near session highs, up 1 percent on the day. <USD/>

Greek political leaders have balked at the austerity plan, with the meeting already having been put off from Monday to Tuesday, as it is certain to mean a big drop in living standards for many Greeks.

"The market is expecting a Greek deal, so there's greater optimism overall," said Greg Moore, currency strategist at TD Securities in Toronto.

"But it's certainly up in the air at this point," he said. "All these are very fluid headlines and that highlights the high level of uncertainty at the moment."

The Standard & Poor's 500 Index has gained almost 7 percent so far this year on better-than-expected economic data. In a sign of the sentiment underlying the rally, the 10-day moving average of stocks hitting 52-week highs on the New York Stock Exchange is 203, the highest since May 2010, according to Thomson Reuters Datastream.

The Dow Jones industrial average .DJI closed up 33.07 points, or 0.26 percent, at 12,878.20. The S&P .SPX rose 2.72 points, or 0.20 percent, at 1,347.05. The Nasdaq Composite Index .IXIC gained 2.09 points, or 0.07 percent, at 2,904.08.

U.S. Federal Reserve Chairman Ben Bernanke, in congressional testimony that mirrored his remarks last week, renewed a pledge to prevent Europe's crisis from damaging the U.S. economy, also helping sentiment for risk assets.

The euro was also underpinned by short covering. Bets by traders that the common currency would fall have been running at record levels, according to data from the U.S. Commodity Futures Trading Commission, although the positions were trimmed slightly in the latest week.

European stocks, up more than 6 percent for the year, fell as weak earnings from Swiss bank UBS AG (UBSN.VX) (UBS.N) signaled the debt crisis may further damage the banking sector.

UBS shares fell 1.4 percent in Zurich and 0.7 percent in New York, while the FTSEurofirst 300 .FTEU3 index of top European shares pared losses as the euro rallied. The index closed down 0.22 percent at 1,072.79.

Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut, said U.S. stocks were holding up despite profit-taking as investors bet a Greece deal would be completed.

"If investors thought the Greek talks were going to collapse, financial markets will be a lot weaker than they are," he said. Still, "a lasting solution continues to be something that is hard to come by."

MSCI's all-country world equity index .MIWD00000PUS added 0.3 percent, having gained almost 9 percent so far this year.

COMMODITIES WHIPSAWED

Gold prices pared early losses and bounced back into positive territory, in line with a rallying euro.

Spot gold prices rose $25.54 to $1,745.30 an ounce.

Oil prices rose in volatile, heavy trade as intermarket spread trading buffeted both Brent and U.S. crude futures, and the dollar turned weaker on another round of optimism about an agreement on Greece's debt problems.

Brent crude settled 30 cents higher at $116.23 a barrel, while U.S. crude settled up $1.50 at $98.41.

U.S. Treasury debt prices fell as investors prepared for this week's $72 billion quarterly refunding and as safety bids waned on expectations of a Greek bailout.

The benchmark 10-year U.S. Treasury note was down 16/32 in price to yield 1.98 percent.