NEW YORK (Reuters) - World stocks snapped a four-day rally on Monday, while the euro and oil prices dropped on concern Greece may default on its debt and trigger economic fallout that would cascade throughout the euro zone and possibly beyond.
But U.S. stocks and the euro recovered from their worst levels in late trade after Greece’s Finance Ministry said the country was near an agreement with its international lenders to continue receiving bailout funds. U.S Treasury debt prices pared gains.
Fears that Europe’s debt crisis was worsening had prompted investors to seek refuge in the U.S. dollar and government bonds. But gold, which often benefits from safe-haven flows, retreated more than $30 an ounce on the stronger dollar.
“For the time being it looks as though there is hope the conversation is going to take on a more positive and constructive tone,” said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.
“A little reason for a little buoyancy in the market, but we’ve seen this before, just a reminder.”
European officials had ended a weekend meeting without agreeing on new ways to tackle the debt crisis and international lenders urged Athens to shrink its public sector and improve tax collection to secure a vital eight-billion-euro rescue payment next month.
World stocks as measured by the MSCI world equity index .MIWD00000PUS fell 1.7 percent after posting the biggest weekly gain since early July last week.
Wall Street stocks ended lower despite the late-session rebound. The Dow Jones industrial average .DJI closed down 108.08 points, or 0.94 percent, at 11,401.01. The Standard & Poor's 500 Index .SPX was down 11.92 points, or 0.98 percent, at 1,204.09. The Nasdaq Composite Index .IXIC was down 9.48 points, or 0.36 percent, at 2,612.83.
Energy and financial stocks were among the worst performers of the session. The PHLX oil service sector index .OSX dropped 1.7 percent, and the KBW bank index .BKX fell 2.8 percent following a steep decline in European banks.
European stocks .FTEU3 ended 2.3 percent lower at 916.07 points. The STOXX Europe 600 Banks index .SX7P fell 3.4 percent to feature amongst the worst performers. Emerging stocks .MSCIEF dropped 2.8 percent.
“There will be additional volatility in the global financial markets heading into the end of the month as the pressure to get Greece and others to enact their reforms will be white-hot intense,” said Andrew Busch, global currency strategist at BMO Capital Markets in Chicago.
Finance ministers of the BRIC emerging economies -- Brazil, Russia, India and China -- will meet this week to discuss support for the euro zone.
A Brazilian newspaper said on Monday the five BRICS nations, which also includes South Africa, have already bought debt through the European Financial Stability Facility and could buy more.
The euro shed 0.8 percent to $1.3685. It had earlier dropped as low as $1.3586 on EBS, approaching last week’s seven-month low around $1.3495. Losses in the euro helped push the dollar 0.6 percent higher against a basket of currencies .DXY.
“The news (from Greece) prompted a little bit of profit taking, but I would not read too much,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. “So far we have seen very little willingness from the EU in taking the difficult steps needed to address the crisis.”
The yen also benefited from a safety bid, with the euro down 1.1 percent. The dollar slipped 0.3 percent to 76.55 yen.
While the Swiss franc is typically the beneficiary of safe-haven flows, recent actions by the Swiss National Bank to weaken it have pushed more of those flows to the dollar and yen.
U.S. benchmark 10-year Treasury notes were trading 29/32 higher in price to yield 1.956 percent, down from 2.05 percent Friday and not far off the 1.879 percent level reached last week, which was the lowest in at least 60 years.
Prior to the Greek official’s comments, 10-year notes had been trading 31/32 higher in price.
Long-dated Treasuries outperformed on expectations the Federal Reserve will try to push already low long-term interest rates even lower by tilting toward longer-duration bonds in its portfolio. Prices of 30-year bonds were up 1-24/32, their yields falling to 3.22 percent, the lowest since January 2009.
The Federal Reserve’s policy-setting panel will meet on Tuesday and Wednesday.
Gold broke below the psychological level of $1,800 last trading around $1,778 an ounce and retreating from the day’s high of $1,827.36.
Oil fell on concerns Europe’s debt crisis would hit demand. Brent crude settled at $109.14 a barrel, down $3.08. U.S. crude slipped $2.26 to end at $85.70.
Additional reporting by Chuck Mikolajczak, Julie Haviv and Ellen Freilich in New York; Editing by Leslie Adler