13/02/2012 - 21:50
(Updates with US markets close)
* Greece passes austerity measures, boosting stocks
* Caution about Greek bailout prospects drives euro down
* Safe-haven U.S. government bonds edge up in price
By Walter Brandimarte
NEW YORK, Feb 13 (Reuters) - World stocks rose on Monday after Greece's parliament passed drasticausterity measures to avoid a chaotic debt default, but doubtsover whether Athens will be able to live up to its promises andsecure a new rescue package killed an initial rally in the euro.
U.S. crude oil prices closed more than 2 percent higherafter Greece on Sunday approved sweeping budget cutsin exchange for a 130 billion euro bailout from the EuropeanUnion and the International Monetary Fund.
But concerns emerged over whether the country will be ableto fulfill its tough austerity promises, keeping demand steadyfor safe-haven U.S. Treasuries and driving the euro lower.
Unrest in the streets of Athens and a voting rebellion bylawmakers of the ruling coalition suggested Greece may be on thebrink of massive social unrest, which would make it difficultfor Athens to stick to the rescue terms.
"You got that knee-jerk positive reaction (in the euro), andthat's ultimately starting to fade," said Brian Dolan, chiefcurrency strategist at Forex.com.
Investors are worried that Greece may fail to "meet thetargets it's setting itself, and that we're going to be seeing areplay of this several months down the road," he added.
The euro edged 0.1 percent lower against the dollarto $1.319, after rising as high as $1.328 earlier.
On Wall Street, bank shares led U.S. stocks higher, afterthe S&P 500 on Friday posted its largest decline so far thisyear. The S&P is up more than 25 percent from its October lows.
"That the (Greek) deal was approved really reduces a lot ofthe tension over the euro zone, but it was expected and on ashort-term basis we're very done to the upside," said Yu-DeeChang, chief trader of ACE Investments in McLean, Virginia.
"That's why we went up and then backed off this morning. I'mcautious because there could be a short-term correction."
The Dow Jones industrial average ended 72.81 points,or 0.57 percent, higher at 12,874.04, while the Standard &Poor's 500 Index rose 9.13 points, or 0.68 percent, to1,351.77. The Nasdaq Composite Index gained 27.51points, or 0.95 percent, to 2,931.39.
World stocks climbed 0.75 percent according to the MSCIAll-Country World Index, while Europe'sFTSEurofirst 300 index of top shares ended up 0.71percent. The STOXX Europe 600 Banks index closed up 0.5percent after being up more than 1 percent earlier.
Emerging market stocks jumped 1.1 percent according to abenchmark MSCI index.
U.S. crude oil Climbed 2.27 percent to settle at$100.91 a barrel.
Bond investors remained cautious, however, with Treasuriesprices seesawing between negative and positive during most ofthe session.
Prices of benchmark 10-year U.S. Treasury notes were up 2/32 points late in the day, sending their yield down to1.97 percent.
Fueling investor concern is a March 20 deadline for Greeceto meet debt repayments of 14.5 billion euros. The rulingcoalition of Prime Minister Luca Papademos needs to securebailout funds before that, but EU leaders want to see details onhow the promised budget savings will be achieved.
The focus is now on Wednesday's meeting of euro-zone financeministers, who are supposed to decide on the rescue package.
Prices of U.S. municipal bonds were unchanged afterPresident Barack Obama proposed limiting tax breaks given tohigh-earners who invest in those securities.
"I don't know how much traction (Obama's proposal) is goingto get," said Dan Berger, senior market strategist at MunicipalMarket Data, a unit of Thomson Reuters. "If there's any impacton munis it's going to be very small. We'll have to see how theStreet reacts to this; they may treat it as the same recycledidea from last year." (Additional reporting by Luciana Lopez, Chuck Mikolajczak andJoan Gralla; Editing by Kenneth Barry, Andrea Evans, LeslieAdler and Dan Grebler)