NEW YORK (Reuters) - U.S. stocks, oil and the euro pulled back from the brink of another sell-off on Thursday, as investors awaited signs the international community could prevent Greece from defaulting on its debt.
Jitters about whether the euro-zone member is edging closer to default fueled buying of low-risk government bonds for a second straight day.
A strong early rebound on Wall Street ran out of steam, with uncertainty about Greece sending stocks lower, led by declines in shares of mining, steel and other materials companies.
Escalating anxiety over Greece, which could receive 125 billion euros in aid, stoked safe-haven bids for high-rated government debt as shares touched a three-month low.
“People are down in the dumps right now. The damage has been done,” said Robert Zukowski, senior analyst at 4Cast Ltd in New York. “The Greek debt situation is not going away.”
There is growing concern that a “disorderly” Greek default could roil the worldwide financial system and dry up lending, similar to what happened after the collapse of Lehman Brothers in September 2008.
“That’s a disaster scenario,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia, although he added that the chance of a disorderly default is remote for now.
The anxiety over a possible Greek debt default supported gold prices and gave investors a reason to buy low-risk government bonds for a second straight day.
U.S. oil prices edged up after an energy agency predicted a sharp spike in world crude demand in third quarter.
In an exceptionally volatile session, stocks and the euro bobbed in and out of positive territory amid worries that Greece’s debt troubles might spiral into another global crisis.
Some analysts worry the debt crisis in Greece and weaker euro-zone countries could become as bad as the 2007-2009 global credit crunch that brought down U.S. investment banks Bear Stearns and Lehman Brothers.
“The situation in Greece is starting to run away a little bit and sort of feels like the Bear Stearns/Lehman run-up that we saw in 2007,” said Brad Bechtel, managing director of Faros Trading in Stamford, Connecticut. “The euro zone is setting up for a similar situation where the coordinated answer they need is not coming quick enough.”
Adding to investor worries was more evidence of a rapid deceleration in U.S. economic activity.
In U.S. stock trading, the Dow Jones industrial average .DJI gained 64.25 points, or 0.54 percent, to end at 11,961.52. The Standard & Poor's 500 Index .SPX rose 2.22 points, or 0.18 percent, to 1,267.64. But the Nasdaq Composite Index .IXIC slipped 7.76 points, or 0.29 percent, to close at 2,623.70. Earlier, the Nasdaq was down slightly more than 1 percent.
In Europe the FTSEurofirst 300 index .FTEU3 fell 0.42 percent to end at 1,084.47, its lowest close since mid-March.
The MSCI world equity index .MIWD00000PUS dropped 1 percent to 327.46, wiping out its 2011 gains. At the close, the index was slightly more than 1 point above its session low of 326.06, which was its lowest level since March 18th.
In Tokyo, the benchmark Nikkei .N225 fell 1.7 percent to close at 9,411.28, following Wednesday's sharp sell-off on Wall Street.
Investors have become more nervous about whether Athens will receive another bout of aid, estimated at 120 billion euros.
European officials and the International Monetary Fund are trying to come up with a rescue package, while the Greek government is divided over the austerity measures needed and how to make private investors share the burden.
“We still feel that they can come to the rescue in time, and it is not out of control completely just yet, but it is getting dangerously close,” Bechtel said. “All the risk indicators are starting to show stress.”
The cost of insuring Greek sovereign debt for five years jumped to 1,900 basis points -- the highest in the world.
The growing financial stress from Greece’s fiscal mess was reflected in the jump in yields on Spanish government bonds to an 11-year high and rising borrowing costs in the London interbank market.
In the currency market, the euro last traded at $1.4212, near its session high. Earlier, the euro had touched a three-week low against the dollar.
The euro also declined against the Swiss franc, which strengthens with increased global risk aversion. The euro hit a lifetime low of 1.1957 Swiss franc on electronic trading platform EBS in early trading.
Wary investors again piled into high-rated government debt.
September U.S. Treasury and German Bund futures rose to contract highs at 124-16/32 and 126.62, respectively.
The yield on the benchmark 10-year U.S. Treasury note slipped to a six-month low at 2.92 percent, down 5 basis points on the day. The 10-year note’s price, which moves in the opposite direction, was up 15/32.
U.S. July oil futures rose 14 cents, or 0.2 percent, to settle at $94.95 a barrel after tumbling 4 percent on Wednesday.
Spot gold prices were last at $1,528.45 an ounce in choppy trading, down from $1,529.85 in late New York trading on Wednesday. Gold touched a low of $1,521.90 earlier.
Additional reporting by Caroline Valetkevitch, Chris Reese and Gertrude Chavez-Dreyfuss; Editing by Dan Grebler and Jan Paschal