Greece hopes lift European stocks; dollar gains

NEW YORK (Reuters) - Optimism that a deal could still be at hand to stave off a Greek default boosted European shares on Tuesday and kept a floor under U.S. stocks, while the U.S. dollar and bond yields edged higher as prospects improved for a Federal Reserve interest rate hike this year.

A seven-year high in new U.S. single family home sales last month, combined with other data, helped bolster the case for lifting benchmark U.S. interest rates.

Federal Reserve Governor Jerome Powell said the U.S. economy could be ready for a first interest rate hike in September followed by a second increase in December and that the economy is likely to strengthen in the second half of the year.

Overseas, Greece presented new proposals on Monday that euro zone leaders welcomed as a basis for a possible agreement to unlock aid and avert default and a potential exit from the euro. But some euro zone leaders cautioned that much work still needed to be done, and some Greek lawmakers reacted angrily to concessions offered by Athens.

"If people are looking past Greece, we can return to the (monetary policy) divergence theme ... and when you do that you look at fundamentals," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "Generally speaking, I think people see the U.S. economy accelerating, leading to a Fed rate hike."

A U.S. dollar index <.DXY> was up 1.1 percent, while the euro fell to a two-week low of $1.11350 before recovering some ground to trade at $1.11840, off 1.38 percent. .

MSCI's all-country stock index <.MIWD00000PUS> was down 0.02 percent.

The Dow Jones industrial average <.DJI> rose 8.64 points, or 0.05 percent, to 18,128.42, the S&P 500 <.SPX> lost 0.65 points, or 0.03 percent, to 2,122.2 and the Nasdaq Composite <.IXIC> dropped 2.26 points, or 0.04 percent, to 5,151.72.

The pan-European FTSEurofirst 300 index <.FTEU3> ended up 1.1 percent, while Greek stocks <.ATG> jumped 6.1 percent.

Also fueling the rally were better-than-expected data on factory and service sector activity in France, Germany and the euro zone overall, according to Markit's preliminary June purchasing manager indexes.

Earlier, Japan's Nikkei <.N225> jumped 1.9 percent to a fresh 15-year high.

In the bond market, benchmark 10-year U.S. notes were last down 4/32 to yield 2.37 percent, from a yield of 2.36 percent late Monday.

Low-risk German 10-year government bond yields fell 1 basis point to 0.88 percent.

Crude futures rallied about 1 percent in New York trade, reversing losses from the European session and latching onto a rebound in oil products.

Brent crude futures were up 76 cents, or 1.3 percent, at $64.10 a barrel, while U.S. crude futures rose 50 cents, or 0.8 percent, to $60.88.

Gold eased as the euro slid against the dollar and as stock markets rallied on Greece hopes. Spot gold was down 0.6 percent at $1,178.10 an ounce.

(Additional reporting by Daniel Bases and Barani Krishnan in New York, and Nigel Stephenson, Atul Prakash and Patrick Graham in London; Editing by Larry King and Nick Zieminski)

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