Euro, stocks unsettled by Greek debt crisis

NEW YORK Tue Feb 14, 2012 5:03pm EST

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

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

Credit: Reuters/Sergio Perez

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NEW YORK (Reuters) - The euro and world stocks retreated on Tuesday on fresh concerns over Greece's bailout, but U.S. stocks rebounded late in the session to end flat on news of Athens' plans to deliver a letter of commitment soon to its international lenders.

U.S. stocks rebounded from negative territory, with the Dow and Nasdaq ending slightly higher after a Greek government source said conservative party leader Antonis Samaras is expected to deliver the letter on Wednesday morning.

Stocks had faltered earlier as weak U.S. retail sales gave investors pause about an equity rally that pushed the benchmark Standard & Poor's 500 Index to almost a seven-month high on Monday.

News that euro zone finance ministers had dropped plans for a special face-to-face meeting on Wednesday to finalize a 130 billion euro bailout for Greece and had opted instead to hold a conference call weighed on the market.

The S&P 500 had gained more than 25 percent from its recent low in early October, leading investors to question how much further the rally can run, especially in the face of the still-simmering European debt crisis.

Bank shares, which have been a barometer of investor sentiment toward Greece and the European debt crisis, fell. The KBW index of banking shares .BKX slid almost 0.5 percent.

"Greece is still very unsettled, and it makes perfect sense people are taking money out of financials," Ken Polcari, managing director at ICAP Equities in New York, said before news of the commitment letter spread across markets.

The January U.S. retail sales data curbed the appetite for risky assets and added to concerns following Moody's credit downgrade late Monday on six euro zone countries and its credit warning on France, Britain and Austria.

U.S. retail sales increased 0.4 percent last month, the Commerce Department said, less than the 0.7 percent rise expected by economists polled by Reuters.

Yet core retail sales, which exclude autos, gasoline and building materials, climbed 0.7 percent. The S&P retail index .RLX edged up to its highest on record and closed up 0.3 percent, slightly off the day's high. It had fallen earlier.

The euro extended losses against the U.S. dollar after the data, while government debt posted slight gains. The single currency fell 0.6 percent to $1.3117.

The dollar hit a multi-month high against the yen after the Bank of Japan boosted its asset-buying program.

The Dow Jones industrial average .DJI closed up 4.24 points, or 0.03 percent, at 12,878.28. The Standard & Poor's 500 Index .SPX fell 1.27 points, or 0.09 percent, to 1,350.50. The Nasdaq Composite Index .IXIC added 0.44 point, or 0.02 percent, to end at 2,931.83.

The broad MSCI all-country world equity index .MIWD00000PUS slid 0.6 percent to 325.09, while the FTSEurofirst 300 index .FTEU3 of top European shares closed down 0.2 percent at 1,069.75.

Early in the session European shares fell in response to the Moody's warnings and downgrades. But they briefly rebounded after data on economic sentiment in Germany, Europe's largest economy, bolstered hopes that the country was returning to growth.

But the sovereign debt crisis weighed on markets.

"We see more scope for the market to scale back a bit these high expectations regarding a very smooth implementation of the Greek package," said David Schnautz, interest rate strategist at Commerzbank in London.

The benchmark 10-year U.S. Treasury note was up 11/32, the yield at 1.94 percent.

The dollar hit a multi-month high against the yen after the Bank of Japan boosted its asset-buying program. The dollar traded as high as 78.50 yen, surging more than 1 percent to its strongest since November 1, according to data from Reuters.

The BoJ's boost to its asset-buying "played up concerns about the outlook for the Japanese economy," said Joe Manimbo, senior market analyst with Travelex Global Payments in Washington. "That could keep the door open for further easing down the road."

Brent crude oil settled up 23 cents at $118.16 after initial declines, while U.S. crude futures settled down 17 cents at $100.74, retreating from initial gains.

U.S. gold futures for April delivery settled down $7.20 at $1,717.70.

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