Shares, euro numbed by Greek drama

World shares saw a muted end to what looks set to be their best week since April on Friday as Greek debt talks took yet another confusing turn and put European markets on the back foot.

The International Monetary Fund had dramatically raised the stakes in Greece’s stalled debt talks late on Thursday, announcing its delegation had left negotiations in Brussels and flown home because of “major differences”’ with Athens.

European and Greek politicians tried to overcome the setback, saying on Friday that talks would continue in a bid to reach a deal by June 18, but for traders it was still a dent to growing optimism for an agreement.

There was little sign of panic however. MSCI’s all-world country index was up 0.85 per cent for what looked likely to be its best week since late April.

The pan-European FTSEurofirst 300 index fell a modest 0.25 per cent and though the euro tumbled for a second day to $1.1233, it was still up 1 per cent for the week.

“We are getting close and close to D-day and this take-it-or leave-it scenario,’’ said Derek Halpenny, European head global market research at Bank of Tokyo Mitsubishi.

“But nobody in my view is ready to trade the ‘Grexit’' view yet. The expectation is still that a deal will be reached.’’

In the bond market there was also mild caution. Benchmark 10-year Italian, Spanish, Portuguese and Greek bonds saw yields nudge up between 7 and 9 basis points as investors moved into the traditional safety of German Bunds.

“It’s a reaction to the IMF withdrawal ... a classic risk-off pattern,’’ said Christian Lenk, a strategist at DZ Bank.

As well as the surprise IMF move, the European Union told Greek Prime Minister Alexis Tsipras to stop gambling with his cash-strapped country’s future and take the crucial decisions needed to avert a devastating default.

Traders were also eyeing euro zone industrial production data due at 0900 GMT for the latest reading of how the bloc’s economy is faring amid the uncertainty.

Asian shares

Asian shares had also had a subdued session overnight.

Activity was sparse with MSCI’s index of Asia-Pacific shares outside Japan up 0.2 per cent, but only just above three-month lows. Japan’s Nikkei barely budged, though it found some support in a dollar bounce against the yen.

China’s market built on its long bull run as the Shanghai index rose 0.8 per cent to its loftiest level since early 2008, with property shares firmer on signs of a revival in real estate demand.

For emerging markets more broadly though it was less positive. MSCI’s main EM index was heading for its fourth week of straight loss having matched its longest ever losing streak this week.

Wall Street

Early Wall Street futures pointed to a 0.3 per cent lower start. The Dow had ended up 0.22 per cent on Thursday, while the S&P 500 added 0.17 per cent and the Nasdaq 0.11 per cent.

Sentiment was bolstered by a solid rise in US retail sales which, combined with upward revisions, suggested the economy was warming nicely after a chilly start to the year.

Fed rate hike

If the momentum is sustained, the Federal Reserve could begin to hike interest rates later in the year, with September increasingly seen by markets as the lift-off date.

All of which sets the scene for the Fed’s meeting on June 16 and 17 which will include a news conference from Chair Janet Yellen.

The improving US data helped the dollar index up to 95.173, and away from a near one-month low of 94.322 set on Wednesday. Against the yen, the greenback bought 123.46 yen, well off this week’s trough of 122.46.

Greece debt deal

The euro had less luck as talks on Greece showed no sign of reaching a deal. The single currency was last off at $1.1232, from a high of $1.1387 set on Wednesday.

Adding to the air of caution, German newspaper Bild reported Berlin was holding “concrete consultations’’ on what to do in the case of a bankruptcy of the Greek state, citing several people familiar with the matter.

This includes discussions about introducing capital controls in Greece if the crisis-stricken country goes bankrupt.

In commodity markets, oil prices dipped after Saudi Arabia said it was ready to raise output further to meet strong demand.

Brent crude oil for July fell 38 cents to $64.73 a barrel, while US crude lost 45 cents to $60.32.

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