Stocks turn higher on U.S. optimism, euro gains

By Herbert Lash

NEW YORK (Reuters) - The euro rebounded on Tuesday after a long-awaited bailout for Greece was reached, and optimism over strengthening in the U.S. economic recovery also lifted Wall Street, driving the Dow Jones above 13,000 for the first time in nearly four years.

Investors, however, displayed some skittishness, with the euro wobbling a bit before trading higher against the dollar and Wall Street falling in early trade on worries that Greece's economic woes were still unresolved even as a 130 billion euro bailout removed the immediate threat of a disorderly bond default.

The size of the Greek economy, however, pales compared with that of the United States, the world's largest economy, which continues to surprise on the upside and bolster investor confidence.

"As it's become more apparent that the U.S. economy is recovering, people have reduced their concerns about Europe and focused much more on prospects here in the U.S.," said Rick Meckler, president of hedge fund LibertyView Capital Management in Jersey City, New Jersey.

"Like any crisis that goes on and on investors start to live with it. Greece is not dominating the news anymore," he said.

Fourth-quarter earnings continue to beat expectations, albeit at a lower rate than recent quarters. Of the 418 companies in the S&P 500 that have reported earnings, 64 percent have topped analyst expectations, according to Thomson Reuters data.

The Dow Jones industrial average was up 47.00 points, or 0.36 percent, at 12,996.87. The Standard & Poor's 500 Index was up 5.33 points, or 0.39 percent, at 1,366.56. The Nasdaq Composite Index was up 10.02 points, or 0.34 percent, at 2,961.80.

Signs of improvement in the U.S. economy and stabilization of Europe's debt crisis have driven the Dow more than 20 percent since late last year, while the S&P has climbed more than 8 percent so far this year.

The euro rose against the dollar after investors pared their bets against the single currency. The euro traded up 0.1 percent at $1.3263. Earlier, it hit a session high of $1.3292 in the overnight session brought on by the Greek bailout.

"Being short the euro is a stale position right now," said Douglas Borthwick, managing director and head of trading at Faros Trading in Stamford, Connecticut. "Many had questioned whether or not Greece would stay in the EUR, but last night's decisions were a resounding vote of yes."

After 13 hours of talks, euro zone ministers agreed on the Greek deal early Tuesday by forcing Athens to commit to unpopular budget cutbacks and private bondholders to accept deeper losses on their holdings.

In Europe, the broad FTSEurofirst index of top European companies closed down 0.5 percent to a preliminary 1,085.89 as investors took profits after the bailout deal.

The MSCI world equity index slipped by 0.1 percent after the Greek bailout but is still more than 10 percent higher for the year to date.

U.S. Treasury prices fell after the Greek bailout dented appetite for safe-haven assets. However, concern over how Athens implements the painful austerity measures moderated losses.

The benchmark 10-year U.S. Treasury note was down 16/32 in price to yield 2.06 percent.

While the bailout for Greece averts a disorderly default next month, which potentially could have disrupted financial markets worldwide, it left major doubts over the prospects for implemention given looming elections in April and rising social unrest on the streets of Athens.

"Greece is increasingly trapped in a vicious circle where ever more austerity comes with an ever higher price tag on growth. Consequently, implementation risk will remain high," analysts at French bank Societe Generale said in a note.

Oil held close to $120 a barrel as Iran's top customers in Asia moved to cut back on supplies due to tighter sanctions by the West over Iran's disputed nuclear program, which the West says is aimed at building bombs, something that Iran denies.

Cuts in Asia are in addition to voluntary cutbacks by Iran's clients in Europe ahead of a July 1 European Union ban on Tehran's oil. As a result, Iran could be forced to re-route up to 500,000 barrels per day from March, trading sources say.

Benchmark Brent was up 55 cents to $120.60 a barrel. U.S. crude was at $104.90, up $1.66.

Gold has drifted between $1,700 and $1,750 in the past two weeks, following the ups and downs in Greece's struggle to secure its bailout package.

(Additional reporting by Julie Haviv; Editing by Leslie Adler)