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 Oil recovered some ground after a selloff on Monday prompted by
Greek rejection of the terms of a bailout and the Chinese stock
market turmoil.
However, U.S. shares looked set to open higher, according to stock
index futures.
Euro zone finance ministers met in Brussels and the bloc's leaders
will meet later in the day. They are waiting for proposals from
Greek Prime Minister Alexis Tsipras as his country's banks rapidly
run out of cash. Failure to reach a deal would make it more likely
Greece will drop out of the euro.
The Euro STOXX 50 index of euro zone blue-chip shares fell 0.9
percent after opening in positive territory. The index fell 2.2
percent on Monday after Greece voted against accepting the terms of
a rescue deal on Sunday.
Germany's DAX index lost 0.6 percent while Italy's FTSE MIB edged
down 0.3 percent.
"We're surprised with how little markets have sold off following the
referendum, but there seems to be faith in the 'Draghi put', and
peripheral markets have decoupled from Greece," said James
Butterfill, global equity strategist at Coutts.
"Markets may well tread water until we get some sort of decision
from the European summit."
German 10-year yields fell 10 basis points to 0.67 percent. However,
yields on government bonds from Italy, Spain and Portugal, the
countries considered most vulnerable to contagion from Greece, also
fell. On Monday, they rose.
Italian 10-year yields were down 6 bps at 2.31 percent.
"The markets appear quite remarkably confident on a deal being
reached," said Lyn Graham-Taylor, a strategist at Rabobank.
German Bund futures opened sharply higher after the European Central
Bank raised on Monday the discount it charges on collateral that
Greek banks must offer in exchange for funds. Sources said the move
was largely symbolic, since the amount Greek banks can borrow is
capped.
The fall in German yields helped push the euro down 0.7 percent to
$1.0972 and 0.8 percent lower against the yen. The dollar rose 0.6
percent against a basket of currencies.
Many asset managers believe a Greek exit from the euro can still be
avoided. Others say the ECB will step in to limit contagion.
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"It is a drift lower for the euro, with things likely to get
interesting if it drops below $1.0970," said Jeremy Stretch, head of
currency strategy at CIBC World Markets. "The markets are reasonably
relaxed at this stage because they believe the ECB will step in to
take action to contain any contagion, should Greece step out of the
union."
CHINA FALLING
Earlier, Asian shares drooped after further losses in China, despite
measures the authorities put in place at the weekend to halt a slide
of almost 30 percent since mid-June.
China's CSI 300 index of the biggest listed companies in Shanghai
and Shenzhen closed down 1.8 percent. It had fallen more than 5
percent earlier in the day.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7
percent, though Japan's Nikkei rose 1.3 percent after a sharp fall
on Monday.
Oil prices rose. Brent crude, which fell more than 6 percent on
Monday, rose 62 cents a barrel to $57.16, though analysts said the
outlook remained weak.
Goldman Sachs said in a note that oil's fall had little to do with
Greece and instead reflected oversupply.
Gold, which has failed to attract much of a safe-haven bid in the
latest flare-up over Greece, dipped to $1,165.40 an ounce as the
dollar rose.
(Additional reporting by John Geddie, Anirban Nag, Alistair Smout
and Christopher Johnson in London, Hideyuki Sano in Tokyo; Editing
by Larry King)
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