NEW YORK (Reuters) - World stocks hit a 6-1/2-month peak and the euro gained on Friday on hopes that Greece will next week seal a long-awaited bailout deal needed to avert a disorderly debt default.
Prices of safe-haven U.S. and German government bonds fell as European leaders expressed optimism that a 130-billion-euros rescue package for Greece could be signed on Monday.
Equities in Europe hit a six-month high as shares of euro zone banks that are among the most exposed to the Greek crisis shot up.
But on Wall Street caution ruled ahead of a long weekend, with U.S. markets closed on Monday for the Presidents Day holiday. The S&P 500 rose modestly, extending a rally that has pushed it more than 23 percent higher since an October low, while the technology-rich Nasdaq edged down.
“The fact the European market is up the Friday before, knowing the U.S. market is off on Monday - it’s really a sign that the Greece situation is priced into the market,” said Andrew Slimmon, managing director of Global Investment Solutions at Morgan Stanley Smith Barney in Chicago.
The Dow Jones industrial average .DJI climbed 45.79 points, or 0.35 percent, to close at 12,949.87, while the Standard & Poor's 500 Index .SPX rose 3.19 points, or 0.23 percent, to 1,361.23. But the Nasdaq Composite Index .IXIC ended down 8.07 points, or 0.27 percent, at 2,951.78.
World stocks as measured by the benchmark MSCI All-Country World index .MIWD00000PUS rose 0.7 percent to their highest since August. In Europe, the FTSEurofirst 300 index of top shares .FTEU3 closed 0.59 percent higher at 1,083.22 points.
The FTSEurofirst 300 closed out the week with a 1.8 percent gain. Bank shares that were among top gainers on Friday were Societe Generale (SOGN.PA), up 6.5 percent, and Credit Agricole (CAGR.PA), up 4.7 percent.
Emerging stocks measured by a benchmark MSCI index .MSCIEF added 1.2 percent, and are up more than 15 percent since the start of 2012.
“Generally investors are only trading for the short term,” said Mark Foulds, head of equity sales at ETX Capital. “They are being attracted by the more volatile sectors, such as the banks, which will do well if there is a second Greece bailout.”
U.S. crude oil gained 0.9 percent to settle at $103.24 per barrel, the highest closing price since last May. Prices of Brent crude oil fell 0.44 percent to $119.58, however, as investors pocketed profits after four straight sessions of gains.
The euro rose 0.2 percent to $1.3162, after hitting a three-week low of $1.2973 on Thursday. It remained 0.4 percent weaker against the dollar for the week.
Against the yen, the European common currency gained 0.92 percent to 104.57.
“I think we’ll get this Greek deal and the euro will edge higher. But Greece is clearly not out of the woods and its problems will be revisited many times in coming months,” said Paul Robson, currency strategist at RBS.
As appetite for risk increased, benchmark 10-year U.S. Treasury notes fell 4/32 in price, driving their yield up to 1.998 percent.
German Bund futures fell 70 ticks on the day to 138.33 after Reuters reported that the European Central Bank was considering allowing Greek bonds held by national euro zone central banks to be subjected to the same losses private investors are set to take.
Data showing U.S. consumer prices rose the most in four months in January boosted demand for inflation-protected securities, although it had little impact on stocks.
“What this does is alleviate any argument inviting” more quantitative easing, said Todd Schoenberger, managing director at Landcolt Trading in Wilmington, Delaware. “But all eyes are on Greece, so this shouldn’t have an impact on trading.”
The break-even rate on U.S. 10-year Treasury inflation-protected securities, or TIPS, moved up to 2.27 percent, over 3 basis points higher than late Thursday and the largest since August 11, according to Tradeweb. The rate measures the yield gap between 10-year TIPS and comparable Treasuries.
Additional reporting by Chris Reese and Angela Moon in New York and Alessandra Prentice in London; Editing by Leslie Adler