World stocks hovered near a five-and-a-half-month high on Friday as investors anticipated an imminent conclusion to Greek debt talks while lower Spanish bond yields and a fall in Italy's six-month borrowing costs also supported the euro.
Sentiment was also buoyed by expectations that upcoming U.S. data would show the world's largest economy grew at its fastest pace in nearly two years at the end of 2011. Stock futures pointed to a steady market open on Wall Street.
E.U. Economic and Monetary Affairs Commissioner Olli Rehn said talks with private creditors on restructuring Greek debt are "very close" to closing. Athens needs a deal quickly to avert an
unruly default when a major bond redemption comes due in March, an outcome which could wreak havoc across financial markets.
The markup investors charge other indebted European economies to issue bonds also eased, with Italy's six-month borrowing costs falling below 2% at an auction, their lowest since May, thanks to appetite from mainly domestic banks flush with European Central Bank funds. Spanish 10-year
government bond yields also fell to their lowest since November 2010.
Moreover, 10-year Spanish government bond yields fell 14 basis points to 4.85%, narrowing the yield spread against German Bunds to 297 basis points.
Portuguese five- and 10-year government bond yields hit euro-era highs of 20.28 percent
and 15.18 percent respectively.
The U.S. dollar fell a quarter percent against a basket of major currencies. The euro rose 0.2 percent to $1.3134.
After weeks of wrangling over the coupon that Greece will pay on new bonds it will swap for existing debt, the focus has shifted to whether the ECB and other public creditors will
follow private bondholders in swallowing losses.
Euro-zone members may have to increase their financial support for Greece if Athens and the private sector do their part to address the country's debt crisis, Eurogroup head
Jean-Claude Juncker told a newspaper.
Italy, on the other hand, has enjoyed a recent rapid decline in yields, mostly driven by demand from domestic banks holding the ECB's cheap three-year loans.
The yen was on track to post its biggest daily gain in a month against the dollar, rising beyond 76.90. The dollar hit a two-month high of 78.29 yen on Wednesday after Japan reported its first annual trade deficit since 1980.
Investors are now awaiting the U.S. report on fourth quarter GDP growth, which is expected to show growth accelerated to a 3% rate from 1.8% in the third.
The hope is the data will show that the U.S. economy is not slowing down in line with Europe.
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