Dollar inches up on Yellen hopes, Greek breather

By Marc Jones

LONDON (Reuters) – World shares held near record highs on Tuesday after Greece produced a list of proposed economic reforms, and the dollar rose on expectations Federal Reserve chair Janet Yellen would signal the Fed was still moving towards raising interest rates.

European stocks <.FTEU3> headed for six days of gains after Greece delivered its proposed reforms to the Eurogroup, the euro zone’s finance ministers. If the list is approved, Greece will get a four-month extension of its financial lifeline.

The reforms included promises not to roll back any ongoing or completed privatisations and assurances that any state spending to address what Greece’s new government has called a “humanitarian crisis” would not hurt the country’s budget.

“In the Commission’s view, this list is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review,” one European Commission source told Reuters.

Greece’s stock market <.ATG>, which was closed on Monday, jumped as much as 7 percent. Greek, Italian and Spanish bond yields all nudged lower as the latest bout of euro zone break-up jitters eased.

Euro zone finance ministers will hold a conference call from 8 a.m. ET to discuss the Greek plan.

Despite Greece’s move, the euro weakened and the dollar gained <.DXY>. Traders were waiting to see what message Federal Reserve chief Yellen would send when she testifies before Congress later.

The greenback gained 0.6 percent to 119.54 yen and was last up roughly 0.2 percent against the euro at $ 1.1303. U.S. 10-year Treasury yields held around 2.08 percent, compared with last week’s high of 2.1640 percent. Wall Street was expected to open little changed.

Yellen testifies around 10 a.m. ET. Markets will be watching to see whether she will repeat the dovish message of the minutes from the Fed’s last meeting, or will reaffirm rates may start rising in June.

“Given the growing evidence that the backdrop can more than withstand what will amount to a modest increase in the policy rate, we find it hard to imagine Yellen will promote the ‘lower for longer’ mantra that was espoused in the minutes,” RBCM chief U.S. economist, Tom Porcelli, said.

“Economic fundamentals quite clearly show we no longer need emergency levels of accommodation.”

HIGH TIMES

Modest 0.2 percent gains for European shares took the benchmark FTSEurofirst 300 index <.FTEU3> to a seven-year high, although investors were reluctant to make any big bets before Yellen testifies.

Better-than-expected results from mining giant BHP Billiton helped London’s FTSE <.FTSE> stay in reach of its 1999 record high. Germany’s DAX <.GDAXI> hovered at its own peak as Telefonica Deutschland raised cost-cut estimates from its E-Plus buy. <.EU>

Encouraged by the expected debt deal, Greek bond yields fell 300 basis points and stocks <.ATG> rose to a 2-1/2-month high.

Some investors remained cautious. Ioan Smith, managing director of KCG Europe, noted the deal would only give Athens four months of breathing space.

“We’ve been in similar situations during the euro zone crisis,” Smith said. “It’s nowhere near close to a structural solution, but the market seems pretty chuffed about it, and ‘hope’ is a powerful investment consideration.”

Asian share markets had crept higher overnight. Tokyo reached another 15-year peak and MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> ended flat.

Oil prices rebounded, with U.S. crude last up 19 cents at $ 49.68 and Brent in London up to $ 59.44 a barrel.

Russia’s rouble gained as a result, although the country’s government bonds suffered when Barclays said it would remove them from its global indexes after Moody’s followed Standard and Poor’s on Friday in cutting them to “junk”.

Gold fell to near a seven-week low of just below $ 1,200 an ounce. Expectations the Fed will raise rates this year have curbed gold’s safe-haven appeal in recent weeks.

“With a healthy U.S. economy, that gives the impetus for the Fed to start normalising interest rates and this is a very bearish signal for gold,” said OCBC Bank analyst Barnabas Gan, who sees gold at $ 1,000 an ounce by the year-end.

(Additional reporting by Wayne Cole in Sydney, Manolo Serapio Jr in Singapore; and Alistair Smout in London; Editing by Larry King)