January 30, 2012 / 5:54 AM / 6 years ago

Caution rules ahead of EU Summit, Greek deal

LONDON (Reuters) - The euro edged back from six week highs and global stocks were lower on Monday as investors turned cautious after U.S. growth figures on Friday that fell just short of expectations and ahead of more crisis talks among EU leaders.

A man looks at an electronic board displaying a fall in major market indices around the world outside a brokerage in Tokyo December 9, 2011. REUTERS/Issei Kato

The lack of concrete progress in Greek debt talks, which officials have said are on the verge of a deal, kept markets on edge and for the single currency there was an element of profit-taking after its strongest week in more than three months.

The Greek deal is needed before agreement can be reached on a second bailout package which Greece needs to meet a 14.5 billion euro repayment on its debt due in mid-March. Otherwise Athens faces a messy default that could reverberate through European and world markets.

“It is all pretty negative, Greece is still trying to get a deal and there are worries about contagion,” said Joe Rundle, head of trading at ETX Capital.

“Euro zone leaders still need to come up with a solution and all the negative news is not good for consumer confidence and could lead to a snowball effect, spending could slow down and hit company earnings.”

The euro was down about 0.4 percent to $1.3160, after climbing to $1.3235 on Friday - its highest level since mid-December. But new data showed currency speculators have raised their net euro short positions - bets on the currency falling - to a fifth straight record high in the week ended January 24.

European stocks .FTEU3 opened down around 0.4 percent 1036.06 though they remain up over three percent for the year to date on hopes an economic slowdown will be milder than expected. Financial stocks were among the early losers with Europe STOXX 600 bank index down around 1.5 percent.

In a further reminder of the euro zone’s problems, Fitch downgraded the sovereign credit ratings of Italy, Belgium, Cyprus, Slovenia and Spain on Friday, indicating there was a 1-in-2 chance of further cuts in the next two years.

Against this backdrop, Italy will auction up to 8 billion euros of debt in the five and 10-year sectors, the first significant test of demand for these longer-dated securities this year.

Italy needs foreign investors to help it refinance some 90 billion euros of bonds falling due between February and April. Its 10-year bond yields have been falling, in part due to the extra liquidity provided to the banking system by the European Central Bank, and are currently under six percent

German government bond futures, used by investors as a safe haven in the crisis, were up slightly awaiting the outcome of the EU leaders’ summit with the front month contract up 39 ticks on the day at 139.28.

Additional reporting by Joanne Frearson; editing by Patrick Graham

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