Euro, stocks halt rally focus turns to earnings

PARIS: A rally in European equities and the euro currency ran out of steam on Friday as investors combed through a raft of corporate earnings from bellwethers such as General Electric while keeping an eye on debt talks between Greece and its creditors.

Futures for the S&P 500 and the Dow Jones were down 0.18 percent and 0.11 percent respectively at 1230 GMT after GE posted fourth quarter revenue that missed Wall Street expectations, sending its shares down about 3 percent in pre-market trading.

However, a strong outlook from IBM and decent results from Intel Corp and Microsoft Corp helped limit the retreat, with futures for the Nasdaq 100 up 0.13 percent.

The FTSEurofirst 300 index of top European shares was down 0.3 percent, halting a week-long rally, while the Euro volatility index, Europe's 'fear gauge' known as dropped to 25.7, a level not seen since early August, signalling a rise in investor appetite for risk.

"Risk aversion is declining, and the wild swings between 'risk on' and 'risk off' trades that we've seen over the past year should slowly fade away sometime this year," said Franck Nicolas, head of global asset allocation at Natixis AM, which has 525 billion euros ($677 billion) under management.

German Bund futures fell 0.5 percent, dragged by mounting expectation of an imminent deal between Greece and its private bondholders over a bond swap deal that would prevent the country from sinking into a chaotic default and ease the euro zone's debt crisis.

"There are encouraging signs the Greek PSI (private sector involvement) deal may be achieved soon, possibly even today and that's likely to keep Bunds on the defensive," said Nick Stamenkovic, a rate strategist at RIA Capital Markets.

"It will cause some relief in the markets but there are still problems ahead for Greece," he added, calling the country's fiscal metrics "horrible" and its growth picture "pretty dire".

Five-year Italian credit default swaps fell 11 basis points to 469 bps, according to Markit, while the Spanish equivalent shed 8 bps to 375 bps.

The cost of insuring debt from France and Austria, both of which recently lost their triple-A rating from Standard & Poor's, also fell.

Copyright Reuters, 2012