US stocks rebound, euro stabilizes vs dollar

But even as there were signs of a return in risk appetite, high-rated government debt rallied on concerns that Greece's debt woes might spiral into another global financial crisis. In Europe, shares slid to a three-month low as international lenders scrambled to save Greece from default.

But on Wall Street, bargain-hunting investors found ample opportunity.

"A lot of bad news has been priced into the market. People are taking that into consideration," said Randy Billhardt, head of institutional sales and trading at MLV & Co in New York. "On a long-term valuation basis there are some bargains out there."

Analysts, however, downplayed the gains on Wall Street, which could turn out to be another one-day reprieve -- similar to the move on Tuesday -- in a longer-term downtrend.

"Yesterday was a 'get-me-out' day," Robert Zukowski, senior analyst at 4Cast Ltd in New York said referring to Wednesday's sell-off. "The Greek debt situation is not going away."

There is growing concern that a "disorderly" default from Greece could roil the worldwide financial system and dry up lending, similar to what happened after the collapse of Lehman Brothers in September 2008.

The cost of insuring Greek sovereign debt for five years jumped to 1,900 basis points, the highest in the world.

The growing financial stress from Greece's fiscal predicament as the euro zone member seeks 125 billion euro in seen in the jump in yields on Spanish government bonds to an 11-year high and rising borrowing costs in the London interbank market.

For now, investors seemed willing to nibble at cheaper stocks, overlooking the Greek debt crisis and evidence of rapid deceleration in US economy activity.

Wall Street stocks turned higher after a weaker open.

A gauge of US Mid-Atlantic manufacturing activity slumped to a near two-year low in June, suggesting US factories were faltering. But first-time claims for jobless benefits fell modestly last week and US housing starts rose more than expected in May.

The Dow Jones industrial average was up 82.87 points, or 0.70 percent, at 11,980.14. The Standard & Poor's 500 Index was up 6.43 points, or 0.51 percent, at 1,271.85. The Nasdaq Composite Index was up 6.32 points, or 0.24 percent, at 2,637.78.

In Europe the FTSEurofirst 300 index closed down 0.42 percent at 1,084.47 points, the lowest close since mid-March.

The MSCI world equity index was down 0.6 percent after hitting its lowest level since mid-March earlier. It had wiped out all the gains made this year.

"Generally we are trying to stabilize. The markets don't want to go too far," said 4Cast's Zukowski.

In Tokyo, the benchmark Nikkei closed down 1.7 percent following Wednesday's sharp sell-off on Wall Street.

In the currency market, the euro briefly rose to $1.4201 after touching a three-week low against the dollar earlier.

The euro also recovered against the Swiss franc, which strengthens with increased risk aversion. The euro hit a lifetime low of 1.1957 Swiss franc on electronic trading platform EBS in early trading.

But risk aversion remains at heightened levels. Investors continued to pile into cash and high-rated government debt.

Benchmark 10-year US Treasury notes were up 10/32 in price to yield 2.93 percent, down 4 basis points on the day. German Bund futures were up 0.4 percent after touching a contract high of 126.62.

US oil futures rose 25 cents at $95.06 a barrel after tumbling 4 percent on Wednesday.

Spot gold prices were last at $1,529.45 an ounce, paring earlier losses. It ended at $1,529.85 in late New York trading on Wednesday.

COPYRIGHT REUTERS, 2011