Stocks up 1pc post Greece austerity

The gains in emerging stocks, bonds and currencies which advanced against a weaker US dollar mirrored relief rallies across global markets that the high watermark of the Greek crisis may have been set for now at least.

Wall Street's seismograph of financial risk, the ViX index of implied volatility in S&P 500 equities, fell sharply overnight to close to 17 percent, 7 percentage points below the June peak and almost half 2011 highs set around Japan's earthquake in March.

Ebbing volatility and a falling dollar, which was down for a fourth straight day, typically boosting the search for the higher risk, yield and implied growth in emerging markets.

Although strategists expect the euro zone debt issue to rumble on for months, Greece looks set to at least clear its July bond redemption hurdles.

Other gauges of easing stress included another 1 percent gain for European bank stocks, the sector's third straight daily rise, and gains across China and emerging Asia stocks.

And on the last day of the US Federal Reserve's second round of money printing, QE2, US Treasury benchmark yields were just shy of 3.10 percent up more than 25 basis points from Monday's low.

Benchmark emerging market debt spreads were a fraction tighter on Treasuries.

Broader evidence of investors continuing to exit safe havens was shown in iMoneyNet data overnight that showed another $18 billion left US cash money funds in the week to Tuesday.

The net outflow in the year to date remains in excess of $100 billion.

But shorter-term traders remained cautious about the quick dissipation of the relief rally on Greece and said the focus would quickly return to other pressing issues like the slowdown in world growth and extent of global monetary tightening.

"It is euphoria from one piece of news and the horizon of the euphoria is one to two days," said Ivo Prokop, an FX dealer at Raiffeisenbank in Prague. "The question is when profit taking will come," he said.

Strategists at BNP Paribas reckoned the short-covering gains would likely continue for the rest of the week.

"Local markets have rallied on the back of the approval of the (Greek) measures yesterday and we expect further short-covering today as the market cuts back on their short-risk trades," they said in a note to clients.

However, this week and next were likely to be tricky to manage for traders due to technical and temporal factors.

Thursday is the final day of the month, quarter and half year and US markets are out for Independence Day on Monday before a week-long vigil to the pivotal June US jobs report next Friday.

The dominant market sentiment post Greece, however, masked individual emerging market sagas.

In Russia, shares in the country's No.5 lender Bank of Moscow and its state-controlled suitor VTB ebbed slightly again after strong gains in the latter and in both banks' bonds on Wednesday on hopes for a state bailout of Bank of Moscow.

Russian authorities are rushing to put together a rescue package for Bank of Moscow after VTB launched a hostile bid but failed to win outright majority control.

Yields on both banks' Eurobonds continued to fall at a more modest pace on Thursday, with Bank of Moscow's dollar Eurobond down another 30 basis points.

One banker said the Russian government's bailout move showed "impressive speed".

VTB will have to boost its stake in Bank of Moscow to 75 percent or let the state buy a stake to enable a bailout of Russia's No.5 bank, sources told Reuters on Wednesday.

Elsewhere, Turkish markets held firm after news that Turkey's gross domestic product grew 11 percent in the first quarter, beating forecasts but raising overheating fears.

Turkey's fast-expanding economy surpassed a consensus forecast for first-quarter growth of 9.65 percent. Estimates ranged between 7.9 percent and 12.4 percent.

"The numbers clearly suggest that the Turkish economy is overheating and that the first conventional interest rate hike could come in the third quarter," said Anders Svendsen, chief analyst at Nordea.

The lira stood at 1.6245 per dollar by 1030 GMT. The main Istanbul share index was modestly down 0.1 percent to 62,980.51, underperforming the emerging markets benchmark index which rose 1 percent.

Copyright Reuters, 2011