Euro rises, shrugs off collapse in Greek debt talks

NEW YORK: The euro recovered from initial losses on Tuesday, helped by a bounce in German investor sentiment and hopes that Greece will find a common ground with its euro zone partners for support beyond its current bailout program.

Earlier, the euro weakened after a collapse in talks to secure a new debt deal for Greece raised doubts about the country's future in the euro zone. Athens rejected a proposal to request a six-month extension of its international bailout as "unacceptable."

But Greek stocks cut losses while Italian and Spanish 10-year government bond yields rose only slightly, amid hopes a deal can be hammered out in coming weeks before Greece runs out of money.

"The decline yesterday was in very thin trading. The market recognizes that Greece is fairly isolated ... without much of a contagion impact," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

The euro rose 0.5 percent against the dollar to $1.1412 , not far from Monday's high of $1.1429. Against sterling, it bounced from within a whisker of a seven-year trough of 73.69 pence set last week to trade at 74.30 pence.

The single currency was also helped by the German ZEW survey that showed analyst and investor sentiment rose in February to its highest in a year.

The latest developments in the Greek negotiations were likely to continue to dominate currency trading in the near term, and some investors, expecting the U.S. dollar to further gain against the euro, were reluctant to make new trades before the process is complete.

The euro is likely to benefit from any agreement between Greek and euro zone negotiators.

"The market is not assigning a high probability for a Greek exit now, though the chances are rising," said Petr Krpata, FX strategist at ING in London.

Central bank news will be a large driver of currency moves in the coming days with the U.S. Federal Reserve and the Bank of England both due on Wednesday to release minutes from their latest policy meetings.

The European Central Bank on Thursday will also release minutes from its January meeting, when it announced a new bond purchase program in an effort to boost growth and stave off deflation, despite opposition from Germany's Bundesbank.