World stocks hit a six-and-half-month peak and the euro rallied on Friday as hopes that Greece will seal a long-awaited bailout deal next week fuelled risk appetite.
Data showing US 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."
Prices of safe-haven US and German government bonds fell, while Italian and Spanish debt yields dropped on growing hopes that Greece will be able to avert a disorderly default.
The country expects to get approval on Monday from euro zone finance ministers to begin a debt swap with private bondholders, a spokesman for the Greek government said.
Key Wall Street indexes were little changed, however, as investors mulled the strength of a recent rally that has driven the S&P 500 to a nine-month high.
The Dow Jones industrial average was up 24.83 points, or 0.19%, at 12,928.91, while the Standard & Poor's 500 Index gained 2.15 points, or 0.16%, at 1,360.19. But the Nasdaq Composite Index was down 3.47 points, or 0.12%, at 2,956.38.
World stocks as measured by the benchmark MSCI All-Country World index rose 0.7% to their highest since August. In Europe, the FTSEurofirst 300 index of top shares gained 0.7%, hitting a 6-1/2 month high.
Emerging stocks measured by a benchmark MSCI index added 1.2%, having risen more than 15% 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."
The euro rose 0.1% to USD 1.314, after hitting a three-week low of USD 1.2973 on Thursday.
"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 US Treasury notes fell 11/32 in price, driving their yield up to 2.02%.
The breakeven rate on US 10-year Treasury Inflation-Protected Securities, or TIPS, moved up to 2.27%, over 3 basis points higher than late Thursday and the largest since August 11, according to Tradeweb. That rate measures the yield gap between 10-year TIPS and comparable Treasuries.
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