Pause in Europe but more gains seen

LONDON: US Treasuries slipped in Europe on Wednesday, pausing after rallying for three days, but remained well supported by fears over the future of the euro zone after Greece stunned markets by announcing a referendum on its latest aid deal.

French and German leaders will aim to push for a quick implementation of Athens' bailout deal after the Greek government's announcement on Tuesday.

Benchmark 10-year Treasury yields were 7 basis points higher at 2.06 percent, but still down around 30 bps since Friday, when traders were looking for a test of the 2.50 percent level.

"Who would have thought that Greece would continue to stir the pot? The market has rallied strongly and that can continue given the likely uncertainty ahead," a trader said. "Today it's about profit-taking and some short covering ahead of some big events but we can certainly get back to the September lows."

Later on Wednesday, investors will take their cues from the US Federal Reserve's statement after a two-day policy meeting, as well as a news conference by Chairman Ben Bernanke. The Fed looks set to take a breather from monetary stimulus measures, even if the financial market turbulence heightens the chances of action later. .

Markets also have to contend with Thursday's European Central Bank meeting, the first under new head Mario Draghi and Friday's US employment report.

Greece's surprise call for a referendum on a euro zone plan to contain the region's debt crisis has spooked investors, who worry that Greek voters could vote down the rescue plan and that such an outcome may lead to a disorderly default on Greek debt.

Copyright Reuters, 2011