LONDON (Reuters) ? Stocks and the euro fell while safe-haven government bonds rose on Friday as final approval for a long-awaited Greek debt deal remained elusive, keeping alive the threat of a messy sovereign default.
Euro zone finance ministers gave a lukewarm response to an inter-party agreement from Athens on austerity measures, and set more conditions for Greece to secure a second bailout needed to ensure it can meet debt repayments next month.
That left the Greek rescue deal in limbo ahead of the weekend and tempered some of the enthusiasm seen in financial markets on Thursday after Greek political leaders clinched an agreement on austerity after weeks of wrangling.
"Despite yesterday's agreement between party leaders over the austerity measures, traders still remain skeptical over whether they (Greece) can avoid a default," said Jonathan Sudaria, dealer at Capital Spreads.
"Concerns were raised that Greece still hasn't done enough to satisfy the criteria to receive a bailout."
The FTSEurofirst 300 (.FTEU3) index of top European shares was down 0.55 percent at 1,067.63 points. The STOXX Europe 600 euro zone Banking Index (.SX7E), exposed to the euro zone's sovereign debt crisis, shed 1.4 percent.
Earlier, Asian stocks also lost ground, leaving global stocks as measured by the MSCI index down 0.6 percent at 326.04.
Despite the drop, the index is up more than 20 percent from it October lows as low interest rates by major central banks and a huge cash injection by the European Central Bank fuelled a rally in stocks, commodities and higher-yielding currencies.
The euro was 0.2 percent lower against the dollar at $1.3262, pulling back from a two-month high of $1.3322 reached on Thursday.
"Some of our clients remain concerned that the Greek situation could worsen from here," said Valentin Marinov, currency strategist at Citi. "With some event risk still very much out there, people may not be willing to keep sizeable risky positions ahead of this weekend's Greek parliamentary vote."
BACK TO THE DRAWING BOARD
Jean-Claude Juncker, who chairs the Eurogroup, set three conditions, saying the Greek parliament must ratify the package when it meets on Sunday and a further 325 million euros of spending cuts needed to be put in place by next Wednesday, after which euro zone finance ministers would meet again.
Analysts say that, while the Greek parliament is likely to ratify the package, rising social unrest is a mounting risk going ahead.
Growth-linked currencies like the Australian dollar and commodities like copper and oil eased as investors cut exposure to riskier assets and preferred the safety of U.S. Treasuries and German Bunds.
March Bund futures were 40 ticks higher at 137.50 with 10-year yields 2 basis points lower at 2.00 percent after pushing to their highest levels this year at 2.05 percent on Thursday.
"It feels like running a software update where the status bar indicates '99 percent done', but then it takes forever to finish," Commerzbank strategists said in a note, referring to the Greek situation.
"Until one knows for sure that the system won't crash, short-covering in Bunds by fast money should prevail, with prospects for a deal next week limiting the upside though."
Risk appetite was also crimped after China's trade activity fell in January by the most since the depths of the financial crisis, raising concerns about the resilience of domestic demand that has shielded the world's second largest economy as exports have slackened.
(additional reporting by Atul Prakash, Neal Armstrong and Kirsten Donovan; Editing by Catherine Evans)
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