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 Oil recovered some ground after Monday's stomach-churning selloff
prompted by Greeks' overwhelming rejection of the terms of a bailout
deal and the Chinese stock markets turmoil.
Euro zone leaders meet in Brussels, awaiting proposals from Greek
Prime Minister Alexis Tsipras as his country's banks rapidly run out
of cash and the European Central Bank tightened the noose on
funding. Failure to reach a deal would increase the likelihood of
Greece leaving the single currency.
The Euro STOXX 50 index of euro zone blue-chip shares rose 0.2
percent after falling 2.2 percent on Monday. Germany's DAX index
rose 0.3 percent while Italy's FTSE MIB was up 1.4 percent.
"The rest of Europe is ring fenced from what's going on in Greece.
We would see further volatility with a Grexit, but not as severe as
we saw in the past," said James Butterfill, global equity strategist
at Coutts.
Yields on German debt, which fell on Monday as investors sought the
low-risk asset, dropped further. Ten-year yields fell 4.8 basis
points to 0.73 percent.
 However, yields on government bonds from Italy, Spain and Portugal,
the countries seen as most vulnerable to contagion from Greece, also
fell.
Italian 10-year yields, which rose on Monday, were down 3.3 bps at
2.34 percent.
German Bund futures opened up sharply after the ECB on Monday raised
the discount it charges on collateral that Greek banks must present
in exchange for funds. Sources said the move was largely symbolic as
the amount Greek banks can borrow is capped.
"It is difficult to say whether this soft reaction is because the
market is not too concerned about Grexit now or whether the
headlines over the course of the day have led the market to believe
that a deal will be forthcoming eventually," said RBC strategist
Peter Schaffrik.
The euro fell 0.3 percent to $1.1005 but held well above Monday's
low of $1.0967. The dollar rose 0.4 percent against a basket of
currencies.
Many asset managers believe a Greek exit from the euro can still be
avoided while others say the ECB would step in to limit contagion.
"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."
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CHINA FALLING
Earlier, Asian shares drooped after further losses in China despite
the authorities there unveiling a series of measures at the weekend
intended 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, having fallen more than 5
percent earlier in the day.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5
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 53 cents a barrel to $57.07, though analysts said the
outlook remained weak.
"Macroeconomic headwinds are rising - be it in the form of the
collapse in the Chinese stock market, Greece's potential exit from
the euro zone or a stronger dollar. So downside risk to Brent flat
price persists," Energy Aspects said on Tuesday.
Gold, which has failed to attract much of a safe-haven bid in the
latest flare-up over Greece, dipped to $1,168.15 and ounce.
(Additional reporting by John Geddie, Anirban Nag and Alistair Smout
in London, Hideyuki Sano in Tokyo, Henning Gloystein in Singapore;
Editing by Andrew Heavens)
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