* S&P U.S. move, Greek debt concerns weigh
* China warns on inflation dangers, forex reserves
* European stocks recoup some losses
* Greece to sell T-bills
By Jeremy Gaunt, European Investment Correspondent
LONDON, April 19 (Reuters) - Debt woes on both sides of the
Atlantic and new signals from China on inflation dangers weighed
on markets on Tuesday, though strong earnings saw European
shares claw back some of the previous day's losses.
Greece was to sell short-term debt later in the morning, an
event likely to test euro zone money markets made increasingly
jittery by mounting concerns the country will be forced to
restructure its debt.
The dollar was slightly weaker against a basket of major
currencies <.DXY> after climbing on Monday as investors
engineered a classic rush to safety even as Standard & Poor's
threatened to downgrade U.S. debt.
European stocks <> bounced back, but only in the
context of having fallen nearly 2 percent on Monday. Japan's
Nikkei <> closed down nearly 1.3 percent.
S&P stirred up investor concerns on Monday when it changed
its outlook on the United States to negative from stable,
threatening the future of its prized AAA credit rating.
The threat brings into focus the huge U.S. budget deficit
and the difficulty that Washington has in paring it down. The
deficit is a key element in the global imbalances that currently
worry many investors and policymakers.
There was no direct reaction to the S&P move on Tuesday from
Beijing, which -- in counterpoint -- holds vast reserves of U.S.
Treasuries, though the head of China's central bank said the
country should diversify investments as its some $3 trillion of
foreign exchange holdings had grown too large.
Another Chinese ratesetter said inflation pressures gave
further scope for hike reserve requirements for banks.
"Discussions on the U.S. losing its AAA-status have been
active for two years, if not longer. S&P's move might have been
a jolt, but should not really be a true surprise," said David
Watt, senior currency strategist at RBC Dominion Securities.
Equity investors, meanwhile, are focused on the earnings
season.
In Europe, there was some boost from SKF <SKFb.ST> and
Burberry <BRBY.L>, which both beat consensus forecasts.
But results lay ahead in the United States from banking
heavyweight Goldman Sachs <GS.N> and technology groups IBM
<IBM.N> and Intel Corp <INTC.O>.
The FTSEurofirst 300 <> was up half a percent.
"We were hit down big time yesterday and I expect to see
some bargain hunting," said Simon Clark, trader at ETX Capital.
"But, we have Goldman Sachs <GS.N> later and there could be
some caution before that, one negative comment from anyone and
we could be back down.
GREEK SALE
Focus on bond markets was clearly on Greece, which faces the
difficult task of selling T-bills with markets continuing to
price in a high probability that the country will need to
restructure its public debt.
"At the very least, they will have to pay up relative to the
comparatively successful auctions carried out so far this year,"
said Credit Agricole's head of European interest rate strategy
Luca Jellinek.
The euro paused from the previous day's sell-off, but the
debt problems remained in the background.
It edged up to the day's high around $1.4260 <EUR=>.
Overall, it has pulled back sharply, having hovered at a
15-month high around $1.4520 for the past week.
"The European debt crisis is in the market's focus again, and
people are concerned there is no lasting solution. Meanwhile,
even negative news in the U.S. isn't putting too much pressure
on the dollar anymore," said Lutz Karpowitz, currency analyst at
Commerzbank in Frankfurt.
(Additional reporting by Naomi Tajitsu, Joanne Frearson
William James; Editing by John Stonestreet)
