The euro gained on Wednesday on guarded optimism that an accord would be reached to avert a Greek default, reducing the appeal of low-risk US and German government debt.
World stocks, with the exception of Wall Street, rallied on strong earnings and expectations that European officials could achieve a viable financial rescue for Greece at a summit in Brussels on Thursday.
Doubts, however, persist whether a second round of financial aid for highly indebted Greece will be enough to stem the crisis from spreading to Italy and Spain, the euro zone's third- and fourth-largest economies.
"There is a feeling that there will be some kind of deal on Greece at the summit, but there are no guarantees this will ease concerns about the crisis spreading to Italy or Spain and people are unlikely to push euro/dollar too much higher," said
Niels Christensen, currency strategist at Nordea in Copenhagen.
In the United States, hints of progress in Washington over cutting the federal debt and increasing the USD 14.3 trillion statutory borrowing limit have allayed some anxiety over a possible US default and the world's largest economy losing its top-notch credit rating.
A bipartisan group of US lawmakers dubbed the "Gang of Six" presented a new plan late on Tuesday that could revive the stalled US debt talks. This reduced fears that lawmakers may fail to lift the federal borrowing limit and cause the world's
biggest economy to default and to lose its top-notch credit grade from rating agencies.
US President Barack Obama expressed support for the bipartisan proposal but doubts remained whether it could muster enough votes to pass.
"I wouldn't jump for joy until I see the details," said Komal Sri-Kumar, chief global strategist at Trust Company of the West in Los Angeles, which manages USD 121 billion in assets, of the plan. "I would also like to see diligent spending control rather than just raising the debt ceiling."
Despite those reservations over debt deals on both sides of the Atlantic, investors bought the euro and pared holdings of safe-haven US and German government debt.
The 30-year Treasury bond fell 1-7/32 in price to yield 4.26% after posting its best day in eight months. The benchmark 10-year note was down 14/32 with its yield at 2.93%.
German Bund futures were down 0.6% at 128.23.
In the currency market, the euro traded at USD 1.4217, not far below a session high of USD 1.4239.
US stocks struggle
Another batch of upbeat earnings was not enough to extend a rally for Wall Street stocks after their best day since March as investors remained cautious over whether enough is being done to keep the US and European debt problems from spiraling into a global crisis.
"There's still tremendous uncertainty around the U.S. debt ceiling and the euro zone, and while earnings have been good, it isn't surprising to have a big up day followed by a down day," said David Carter, chief investment officer at Lenox
Advisors in New York, referring to Tuesday's stocks gains.
Instead US stocks struggled, but Apple's strong earnings helped put a floor under stock prices.
Apple Inc reported blockbuster quarterly results after the market closed on Tuesday. The maker of the iPhone and the iPad rose 3.3% to USD 389.29 a share.
In Europe, the FTSEurofirst 300 gained 1.3%, cutting its year-to-date losses to around 3%.
Earlier, Japanese stocks marked their biggest daily rise in three weeks. The Nikkei closed up 1.2%.
World stocks as measured by MSCI were up 0.8% despite a mixed US stock market.
At 2:15 p.m. EDT (1815 GMT), the Dow Jones industrial average was up 10.37 points, or 0.08%, at 12,597.79. The Standard & Poor's 500 Index was up 2.57 points, or 0.19%, at 1,329.30. The Nasdaq Composite Index was down 4.98 points, or 0.18%, at 2,821.54.
Data signaling strong energy demand, together with improved investor sentiment, helped lift oil prices. Brent oil futures in London were up USD 1.06 at USD 118.12 a barrel, while US crude for August delivery in New York rose 71 cents to USD 98.26.
