Stocks leap to multi-year highs on Greek debt hopes

LONDON (Reuters) - Stocks stormed to multi-year highs on Wednesday as investors shrugged off the uncertainty over Greece's debt negotiations with its creditors, pinning their hopes that a deal will be reached by the end of the week.

The Greek government said it will request a loan extension for up to six months from its creditors on Thursday morning, although Germany said there will be no such deal unless Greece sticks to the terms of its current bailout.

The European Central Bank, meanwhile, is expected to announce later in the day that it won't cut off emergency funding for Greek banks, a source told Reuters.

Europe's main bourses followed Asia and Wall Street higher. The FTSEuroFirst 300 index <.FTEU3> of leading European shares rose 0.8 percent to a fresh seven-year high of 1,516 points, and Britain's FTSE 100 <.FTSE> hit a 15-year high of 6,921 points.

The flip side of investors' appetite for risk saw increased selling of core government bonds, pushing the yield on benchmark 10-year U.S. Treasuries to its highest since the first trading day of the year.

"While the political situation in Greece remains volatile, the economic and financial situation is more under control," said Andreas Clenow, hedge fund trader at ACIES Asset Management. "I still see a bull market on stocks, and I have been buying into weakness on the Euro STOXX."

France's CAC 40 <.FCHI> share index climbed 1 percent to its highest since June 2008, and Germany's DAX <.GDAXI> rose 0.5 percent to within a whisker of its record high set earlier this month. European financials were among the biggest gainers, up 2 percent <.SX7E>.

Greek stocks got back some of this week's losses to trade 2 percent higher <.ATG>. Curiously, the Athens index is outperforming both the Dow Jones Industrial Average and S&P 500 so far this year.

Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.2 percent.

Japan's Nikkei <.N225> rose 0.9 percent to its highest since July 2007. There was little reaction to the Bank of Japan's well-anticipated decision to stand pat on monetary policy and maintain its massive stimulus.

U.S. shares are called to open slightly higher, building on Tuesday's gains that pushed the S&P 500 <.SPX> to another record high <.SPc1> <.DJc1>.

JOBS DATA JOLTS UK MARKETS

The positive tone to stocks was soured a bit by stronger-than-expected UK employment and wage data, soothing investors' fears of deflation but bringing the prospect of an interest rate hike back into view, however distant.

The FTSE 100 gave back its gains to trade flat on the day, while sterling jumped almost 1 percent to a seven-year high of 73.65 pence per euro .

"We see scope for further improvement over the coming months. Next month's earnings data could be more significant in driving the policy outlook, given that higher wage settlements at the turn of the year should start to feed through," said Timo del Carpio, European economist at RBC Capital Markets.

In bonds, Italian and Spanish 10-year yields both fell around 5 basis points , and three-year Greek yields fell around 100 basis points to 17.7 percent .

Core government bonds were weaker, with 10-year U.S. yields' rise to a seven-week high bringing the increase so far this month to 47 basis points. That would be the biggest monthly increase in over four years.

Investors will look to the minutes of January's Federal Reserve monetary policy meeting, due to be released later on Wednesday, for signs the central bank is on track to raise interest rates this year, maybe as early as June.

In currencies, the euro fell a third of one percent against the dollar to $1.1375 , thanks to its weakness against sterling and the dollar's widening interest rate and yield advantage. The dollar was steady at 119.30 yen .

Brent crude oil was down 2.2 percent at $61.11 a barrel after rallying earlier in the week amid threats to Middle East production and a falling U.S. rig count. Brent is up around 35 percent from its low of near $45 a barrel barely a month ago.

A fragile ceasefire between Russia and Ukraine kept emerging-market investors on edge, with Ukrainian assets in particular coming under heavy pressure.

Ukraine five-year credit default swaps soared by 985 basis points to 3,669 bps, according to Markit. Its dollar bond yield spreads over U.S. Treasuries jumped 29 basis points to a record high of 3,038 on the EMBI Global index <11EML>.

(Reporting by Jamie McGeever; Editing by Larry King; To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub)

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