GLOBAL MARKETS- Euro zone problems overshadow Greek vote relief
* Euro zone debt worries haunt risk asset markets
* Spanish bond yields rise above 7.1 percent
* Euro gives up gains made after Greek election
* European shares reverse early gains to be flat.
By Richard Hubbard
LONDON, June 18 (Reuters) - Relief over the Greek election result gave way rapidly to concerns about problems in Spain and the wider euro zone on Monday, with European shares and the single currency reversing early gains.
U.S. stock index futures also pointed to a softer open with the worsening performance of the giant economy putting the focus on the upcoming Federal Reserve policy meeting and the chances of fresh action to stimulate flagging growth.
Greek voters gave a majority to parties supporting the country's economic bailout, easing worries about a break up in the euro zone and initially boosting risk assets, but the huge problems the currency bloc still faces quickly wiped out the gains.
"Whether or not the Greek election result succeeds in averting an immediate crisis for the euro, the fundamental problem of lack of growth in Europe remains," said Peter Sullivan, Head of European Equity Strategy for HSBC.
The weakening growth outlook and its impact on debt-laden nations struggling to implement tough government austerity measures turned the spotlight immediately to Spain and Italy.
Spain's key 10-year government bond yields shot up 22 basis points to 7.14 percent, the highest level in the euro era and above the rate at which Greece, Ireland and Portugal were forced to seek international bailouts.
Equivalent Italian bond yields rose 15 basis points to 6.08 percent.
Spanish and Italian stock markets also both underperformed the broader European equity market with Spain's IBEX falling nearly 1.8 percent and Italy's FTSEMIB falling 1.2 percent. The FTSEurofirst 300 index of top European shares managed slight gains to be up 0.2 percent at 995.16 points.
The euro was flat on the day at $1.2630, off a 1-month high reached during Asian trading in reaction to the Greek vote.
In Greece the centre-right New Democracy party was trying to form a coalition government with other parties committed to the 130-billion-euro ($164 billion) bailout deal after narrowly defeating the radical left SYRIZA bloc in Sunday's election.
Many investors were concerned that the overall political picture in Greece remains uncertain, with SYRIZA vowing to continue its opposition to the painful austerity measures.
"A new Greek coalition government is unlikely to be able to restore economic growth or deliver effective reform without substantial financial help from the rest of the euro area," said Trevor Greetham, Director of Asset Allocation at Fidelity Worldwide Investment.
Help was expected to be forthcoming, if only in a very limited fashion.
German Foreign Minister Guido Westerwelle said the substance of Greece's austerity and economic reform programme, agreed in exchange for a second bailout, was non-negotiable, but the timing could be adjusted.
The comments were quickly downplayed by government officials in Berlin with a spokesman saying now was not the time to give Greece "a discount". But Deputy Finance Minister Steffen Kampeter told local television: "It is clear to us that Greece should not be over-strained."
It's likely the heads of the Group of 20 major industrialised and developing nations will add to the pressure on Europe's leaders to come up with a lasting solution to their 2-1/2 year old financial crisis when they meet later on Monday in Mexico.
Any major policy response markets are seeking will probably have to wait until a meeting of EU leaders at the end of the month, which follows a gathering of euro zone finance ministers on Thursday and a mini summit of German, French, Italian and Spanish leaders on Friday.
"What we want to see from European leaders right now is a basically consolidated response to this crisis. They need to be singing from the same hymn sheet," Michael Hewson, senior market analyst at CMC Markets.
CENTRAL BANKS KEY
In the meantime the weaker global growth outlook and the slow pace of European policy moves have turned the spotlight back onto the world's central banks and whether they will step in to try to boost flagging activity.
The market's main attention is firmly on the outcome of the two-day meeting of the U.S. Federal Reserve's Open Market Committee (FOMC) which begins on Tuesday.
Data released on Friday showing U.S. factory output contracted in May for the second time in three months, the latest in a series of weak economic reports, raised expectations of a fresh round of stimulus measures.
Only a small number of economists polled by Reuters earlier this month were expecting any move by the Fed at this week's meeting, but that number could have been changed by the negative response to the Greek vote and last week's Spanish bank bailout.
In the commodity markets, the concerns over the euro zone erased initial gains in reaction to the Greek vote and gave gold prices a boost as its safe-haven status returned to the fore.
Brent crude was down 1.24 cents at $96.37 a barrel, sliding from a one-week high of $99.50 a barrel hit early in the session. U.S. oil futures fell 21 cents at $83.82 a barrel, also off a one-week high of $85.60 a barrel hit in the initial redaction to the Greek vote.
Spot gold was down 0.2 percent at $1,624.04 an ounce, off an early low of $1,606.49.
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