World stocks hit near five-month high before Greece talks

LONDON (Reuters) - Global shares hit their highest since September and the euro firmed on Monday with investors cautiously optimistic euro zone finance ministers would reach a deal to shore up Greece's dwindling finances.

The prospect that Greece and its partners will find common ground in talks later in the day and reach an agreement that would prevent Greece having to leave the euro zone helped push low-risk government bonds yields higher. However, a rise in the price of safe-haven gold testified to the uncertain outcome.

The meeting of euro zone finance ministers is due to begin at 1400 GMT.

The MSCI all-country world stocks index <.MIWD00000PUS>, which has risen in recent days on prospects for a Greek deal and after last week's ceasefire deal for Ukraine, touched its highest since Sept. 22.

Tokyo's Nikkei <.N225> closed at its highest since July 2007, buoyed by a record close on Friday in the U.S. S&P 500 index <.SPX> and after data showed Japan emerged from recession in the final quarter of 2014, although its 0.6 percent growth was less than forecast.

U.S. financial markets will be closed on Monday for the Presidents' Day holiday.

The euro rose 0.3 percent to $1.1413 and gained 0.2 percent to 135.37 yen .

"This can quickly turn sour for the euro if there is no deal today," said Susanne Galler, a strategist with Jefferies in London.

"The market consensus is for them to do a deal by the end of this week. But we think that if there's no deal today and the clock starts ticking then the euro will look increasingly vulnerable."

The pan-European FTSEurofirst 300 <.FTEU3> stocks index was last down 0.1 percent and Germany's DAX <.GDAXI>, which hit a record high on Friday, was down 0.4 percent.

Athens' volatile <.ATG> stocks index fell 4.4 percent, having risen 5.6 percent on Friday. Greek three-year bond yields rose 170 basis points to 17.44 percent, way below last week's 21.8 percent peak.

"I'm not too worried for now. I don't think that Germany can afford to let Greece leave the euro zone, and the Greeks themselves will have to compromise a little bit. So I think we'll reach a half-way house compromise," said Clairinvest fund manager Ion-Marc Valahu.

Greek Prime Minister Alexis Tsipras, elected last month on a pledge to scrap austerity measures imposed under Greece's international bailouts, said on Sunday he expected difficult negotiations but was "full of confidence".

French Finance Minister Michel Sapin hinted at a slight easing of euro zone opposition to Greek requests for an end to austerity and a new debt deal, saying Europe must respect the political change in Athens. However, German Finance Minister Wolfgang Schaeuble said in a radio interview on Monday he was "very sceptical" there would be a deal.

Greece's current bailout deal runs out on Feb. 28.

BENCHMARK BONDS

Cautious optimism over Greece helped push core euro zone government bond yields higher. Benchmark German 10-year yields rose 0.3 basis points to 0.346 percent.

The dollar was broadly weaker. It fell 0.2 percent against a basket of major currencies <.DXY>.

The yen rose 0.1 percent to 118.60 to the dollar and sterling, buoyed by recent policymaker comments viewed as hawkish, hit a six-week peak of $1.5440 before retreating.

The oil price held on to last week's gains after Kuwait's oil minister said lower levels of supply would support prices in the second half of this year. Brent crude was last up 1.3 percent at $62.33 a barrel. Oil topped $60 a barrel last week for the first time since December as the number of oil rigs in the United States fell.

Gold, often sought as a safe haven in times of market turmoil, rose before the Greek talks and on dollar weakness.

Spot gold last traded at $1,234.10 an ounce.

(Additional reporting by Patrick Graham and Sudip Kar-Gupta in London and Wayne Cole in Sydney; Editing by Susan Fenton)

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