* European shares hold clear of 2012 lows
* Euro edges up from two-year trough
* French benchmark bond yield at euro-era low
* Greek euro exit contagion fears dominate backdrop
By John Stonestreet
LONDON, May 25 The potential fallout from a
Greek exit from the euro zone and worries about the global
economy weighed heavily on financial markets on Friday, snuffing
out a tentative rally in stocks and setting up a mixed outlook
for Wall Street's open.
U.S. stocks futures pointed to gains on the broad S&P 500
index but losses on the blue-chip Dow Jones industrial
A comment from Belgian Deputy Prime Minister and Foreign
Minister Didier Reynders set the mood.
"If central banks and companies are not preparing for the
scenario (of Greece leaving the euro zone), that would be a
grave professional error," he told a conference in Paris.
The FTSEurofirst 300 index was down 0.2 percent at
around 980, not too far from its May 21 trough of 952.55 points,
its lowest point since December 20.
"Europe is in a recession, China is slowing down and the
United States is slowing down as well," said Michel Juvet, chief
investment officer at Swiss bank Bordier & Cie.
There was, nonetheless, some upbeat economic news. German
consumer morale held steady going into June while Chinese
exports showed signs of recovery in early May, countering dire
recent data that suggested Europe's growth engine was no longer
immune from the region's debt crisis and factory output in the
world's number two economy was faltering.
The modest data boost helped keep the euro above
two-year lows of 1.25155 as bearish investors took a breather
from a sharp sell-off. But the common currency stayed on track
for its fourth straight week of losses.
Safe-haven flows drove the index that measures the dollar
against key currencies to a fresh 20-month peak.
"Markets have priced in a very negative scenario for Greece
as well as deteriorating growth prospects in the euro zone, but
with them very much focused on the tail risk of Greece leaving
the euro bloc, the euro remains highly vulnerable," said
Masafumi Yamamoto, chief FX strategist at Barclays.
With the euro zone mired in crisis, there was speculation
that European policymakers might soon intervene,
Credit Agricole said the European Central Bank could
announce new stimulus measures next month, such as another round
of emergency funding for banks in the region.
"We expect the ECB to make a move (at its next rate-setting
meeting) on June 6," it said in a research note.
ECB action then could help lift the prevailing mood of
uncertainty among global investors who remain sharply focused on
June 17 elections in Greece that will largely determine if
Greece gives up the euro.
One opinion poll on Thursday showed the anti-bailout leftist
party SYRIZA maintaining its lead ahead of the vote.
The unclear outcome of the ballot has also driven debt
markets, sending yields on safe-haven German bonds to record
lows and culminating on Wednesday in a sale of two-year Bunds
that drew strong demand despite carrying an unprecedented zero
On Friday, a tentative search for higher returns prompted a
sharp rally in non-German debt, with the yield on French 10-year
bonds - viewed as a viable alternative to Bunds -
falling to 2.5 percent.
Other euro zone sovereign yields also fell. The equivalent
benchmark German yield was 1.38 percent.
"The (debt) market is trading political headlines which
means, in turn, the market will remain very volatile for the
time being," said DZ Bank strategist Michael Leister.
The underlying mood earlier saw Asian shares outside Japan
post a third consecutive week of losses to hit
their lowest levels of the year.