GLOBAL MARKETS-Euro, euro zone bond markets hold out hope for recovery fund, stocks cautious

* Euro hits four-month peak on reports of progress on EU
talks
* Italian-German spread falls to 162 bps, lowest since late
March
* Euro zone stock markets sink in risk-off moves

By Ritvik Carvalho
LONDON, July 20 (Reuters) - The euro and euro zone bond
markets held out hope European Union leaders would strike a deal
on a recovery fund for the bloc's pandemic-ravaged economy on
Monday, but the region's stock markets took a cautious turn
lower as talks paused.
The single currency hit its highest levels against the
dollar since March 9, at $1.1467 EUR=EBS after reports of
progress following three days of negotiations towards the
proposed 750 billion-euro fund. FRX/
Bond markets also cheered the progress, with the risk
premium investors pay for holding Italian government debt over
Germany's - the bloc's benchmark - falling to 162 basis points,
the lowest level since March 27. GVD/EUR
Stock markets kept the optimism in check, however. The
pan-European STOXX 600 index .STOXX fell 0.6% in early deals.
.EU
Talks on the fund were adjourned on Monday until 1600 CET
(1400 GMT). After the adjournment was announced, both the
Austrian Chancellor Sebestian Kurz and Dutch Prime Minister Mark
Rutte said progress was being made. A group of wealthy northern European states pushed during
the summit for a smaller recovery fund and sought to limit how
payouts are split between grants and repayable loans.
An attempt to reach a compromise failed on Sunday. A deal
envisaging 400 billion euros in grants - down from a proposed
500 billion euros - was rejected by the north, which said it saw
350 billion euros as the maximum.
Discussions over the grants has since narrowed, with EU
summit Chairman Charles Michel saying they would be based on 390
billion euros combined with smaller rebates.
"The euro has gained on the likelihood that they do come up
with some solution at this meeting," said Marshall Gittler, head
of investment research at BDSwiss Group.
"I had expected them to fail, or at best to come to only a
partial agreement, but the fact that they've kept at it for this
long shows that they really are determined to succeed," Gittler
said. A successful agreement would probably give the euro a
further boost, he said.
Earlier in Asia, MSCI's broadest index of Asia-Pacific
shares outside Japan .MIAPJ0000PUS gained 0.14%, reversing
loses earlier in the day.
Chinese markets rose more than 2% after regulators raised
the equity investment cap for insurers and encouraged mergers
and acquisitions among brokerages and mutual fund houses.
Australia's S&P/ASX 200 index .AXJO dropped 0.5% after
authorities warned that a surge in COVID-19 cases in the
country's second most populous state could take weeks to
tame. More than 14 million people have been infected by the novel
coronavirus globally and nearly 602,000 have died, according to
a Reuters tally. South Korea's KOSPI .KS11 pared gains to fall 0.1%.
Japan's Nikkei .N225 was also down 0.1% after data showed the
country's exports suffered a double-digit decline for the fourth
month in a row in June. In the United States, Congress is set to begin debating a
new aid package this week, as several states in the country's
South and West imposed new lockdowns to curb the virus.
The virus has claimed over 140,000 U.S. lives since the
pandemic started, and Florida, California, Texas and other
southern and western states shatter records for new cases every
day. Wall Street futures traded 0.6% lower. ESc1 .N
In currencies, the dollar climbed 0.2% against the Japanese
yen JPY= to 107.22. Sterling was flat at $1.2570. The
risk-sensitive Australian dollar AUD=D3 was down 0.1% at
$0.6989.
In commodities, spot gold XAU= fell to $1,807.6 an ounce,
still near a nine-year top.
Oil prices fell, unnerved by the prospect of rising
coronavirus cases halting a recovery in fuel demand. U.S. crude
CLc1 and Brent LCOc1 were both down 1% each to $40.14 per
barrel and $42.71 per barrel, respectively. O/R
Prices for copper CMCU3 , a barometer of economic growth,
fell on Monday after data showed rising inventories in Chinese
warehouses and on concern the climbing coronavirus cases
threatened a sustainable global recovery. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Euro, euro zone bond markets during coronavirus crisis https://tmsnrt.rs/2E1BYm3
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