* Newspapers report EU considering Greek bailout
* EU, Greek officials deny any such plans
* Greek/Bund 10-yr bond spread narrows, euro up vs yen, dlr
* MSCI All-Country World Index down for 8th straight session
By Dominic Lau
LONDON, Jan 29 (Reuters) - European stocks rose, the euro
recovered and the premium it costs Greece to borrow fell on
Friday after newspaper reports said the European Union was
considering bailing out Greece.
European Union and Greek officials firmly denied the idea,
though, and global investors remained nervy about Athens' fiscal
problems, with world stocks down and on track for the eighth
straight session of losses.
Global equities measured in MSCI All-Country World Index
<.MIWD00000PUS> eased 0.1 percent, falling for the eighth day in
a row and on track for the longest losing run since July 2008.
The pan-European FTSEurofirst 300 <> index, however,
rose 0.8 percent, recovering from the previous session's hefty
fall, while Greece's benchmark <> advanced 1.2 percent.
U.S. stock index futures <DJc1> <SPc1> <NDc1> were up
0.1-0.4 percent ahead of the fourth-quarter U.S. GDP figures.
Earlier, Japan's Nikkei average <> lost 2.1 percent to a
six-week closing low, hit by poor earnings and bearish news flow
on the Greek saga in the previous session.
The Financial Times on Friday quoted what it said were
high-level EU officials as saying Greece would as a last resort
receive emergency support from other euro zone governments and
the European Commission.
EU monetary affairs chief Joaquin Almunia said there was no
risk that Greece would default or leave the euro zone and
Finance Minister George Papaconstantinou said Greece was not
involved in bailout talks. []
Markets' suspicion that something was in the works, though,
helped the Greek/German 10-year government bond yield spread
tighten and the euro recover from a six-month low against the
dollar and a nine-month low versus the yen.
The premium investors demand to hold Greek government bonds
rather than benchmark German Bunds narrowed to 376 basis points
from 396 bps in late Thursday trade. The spread blew out to a
record 405 bps on Thursday on investor fears that Athens may not
be able to service its heavy debt.
"It was just such a violent move out and we are just seeing
a slight retracement of that this morning," said a trader in
London.
"The headlines are also helping. The underlying consensus
seems that the EU is going to bail out Greece eventually."
FEARS
Financial markets are gripped by the fear Athens will not be
able to service its heavy debt, putting pressure on the euro and
even raising speculation as to whether Greece could be forced
out of the currency bloc.
The euro was flat against the dollar at $1.3973, off a
six-month low, but was up 0.5 percent at 126.17 yen <EURJPY=>,
while the dollar <.DXY> was steady against a basket of major
currencies.
"This is not just Greece's problem; contagion is spreading
to other peripherals and possibly even to Spain, which would be
a big problem in terms of the size of their economy," said Lee
Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
"The peripheral countries need to aggressively reduce their
deficits and this would undermine their economic growth, and
potentially leave the ECB on hold for longer. So from a policy
perspective, the euro would weaken."
Investors have also been nagged this week by fears that the
global economic recovery may be losing momentum, China's steps
to cool its surging economy and political and regulatory
wrangling in Washington.
Overnight the U.S. Senate backed Ben Bernanke for a second
four-year term running the Federal Reserve. []
Yields on benchmark 10-year U.S. Treasuries <US10YT=RR> were
up 1 basis point at 3.656 percent, while those on 10-year Bunds
<EU10YT=RR> were up 1 basis point at 3.208 percent.
In the commodity market, copper prices <MCU3> fell for the
fourth consecutive session, down 0.3 percent, but oil prices
<CLc1> rose to trade near $74 a barrel.
(Additional reporting by Emelia Sithole-Matarise and Tamawa
Desai in London; editing by Patrick Graham)
