Greek debt deal sends world shares higher

Traders concentrate on their screens at the Frankfurt stock exchange February 2, 2012.

LONDON (Reuters) - European shares climbed to near a three-week high and safe haven German bonds fell on Tuesday, after global lenders agreed to reduce Greek debt and release loans to keep the economy afloat.

After 12 hours of talks, they decided steps to cut Greek debt to 124 percent of gross domestic product by 2020, and promised further measures to lower it below 110 percent in 2022.

Following months of jockeying, the deal was broadly expected by markets and clears the way for Greece's euro zone neighbours and the International Monetary Fund (IMF) to disburse almost 35 billion euros of aid next month.

European shares on the FTSEurofirst 300 index rose 0.5 percent following the deal, with London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX between 0.4 and 0.6 percent higher.

The MSCI index of global stocks was up 0.2 percent and U.S. futures prices pointed to a higher open on Wall Street when trading resumes.

"After three meetings this months and a total of more than 24 hours of discussing and negotiating, the euro zone countries have put their money where their mouth is," said ING economist Carsten Brzeski.

"The political will to reward the Greek austerity and reform measures has already been there for a while. Now, this political will has finally been supplemented by financial support."

On the currency markets, the euro hit $1.3010, its highest level since October 31, during Asian trading but lost momentum and was 0.3 percent down at $1.29445 by mid-morning in Europe.

"While the EU/IMF agreement on Greece is EUR-supportive, it was widely expected and hence the market reaction is likely to remain muted. We maintain our buy on dips strategy," Morgan Stanley's FX strategy team wrote in a note to clients.

Elsewhere the dollar was broadly flat against a basket of key currencies, while the yen slipped after Japan's opposition leader and likely next prime minister reiterated calls for bolder monetary and fiscal stimulus.

COMMODITIES UP

The Greek deal also helped commodity markets with copper rising to a near one month high of $7,791.50 a tonne and oil inching up 11 cents to $111.05 a barrel.

After an initial post-deal jump, gold steadied back at around $1,750 an ounce.

On the euro zone bond market, safe haven German government bonds fell, with benchmark Bunds down over 40 ticks at 142.00 compared with 142.43 at Monday's settlement. Ten year Greek yields remained near lows last seen when the country's debt was restructured in March.

"Bunds are falling simply because the market is relieved we have a deal now and the tail risk of a Greek accident has been taken out," said Michael Leister, a senior rate strategist at Commerzbank.

With doubts about Greece being able to hit its growth and debt cutting targets, few analysts expect the latest agreement to be the final chapter in the euro zone's three-year crisis.

Underscoring the concerns, the OECD slashed its global growth forecasts on Tuesday, saying the euro zone's troubles were the greatest threat to the world economy.

"(The Greek deal) is not the green light for a sustained rally for risk assets across the board. As we've seen before, once the market starts scrutinising some of the details some doubts may well arise," added Commerzbank's Leister.

In Asian trading, MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.6 percent to a near three-week high, led by a 1 percent advance in Korean shares and a 0.7 percent rise in Australian shares. The Sensex ended up 1.7 percent.

Shanghai shares bucked the trend to fall 1 percent to their lowest since 2009, dragged by weakness in growth-sensitive companies.

(Additional reporting by Emelia Sithole-Matarise; Editing by Anna Willard)