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Latest Greek twist sends euro, stock futures falling; oil sinks

The euro and US equity futures declined as Greece spurred another round of risk aversion, with the indebted nation facing another deadline to reform amid the prospect of being ejected from the currency union.

[TOKYO] The euro and US equity futures declined as Greece spurred another round of risk aversion, with the indebted nation facing another deadline to reform amid the prospect of being ejected from the currency union. The yen and Treasury futures climbed, while oil and copper retreated.

The 19-nation euro dropped 0.3 per cent to US$1.1130 by 8:12 am in Tokyo, losing 0.4 per cent to the yen as the Australian and New Zealand dollars weakened with Canada's currency. Standard & Poor's 500 Index futures dropped 0.5 per cent with Japanese futures in Chicago. The NZX 50 Index, the first equity gauge to start trading in the Asian region, slipped 0.2 per cent. Ten-year Treasury futures rose for the first time in three days. US crude lost 1.4 per cent as copper futures fell.

Greece has three days to enact economic reforms or face being suspended from the euro, with the bloc's finance chiefs refusing to engage on more bailout aid before the changes are passed. A deal on Iran's nuclear program may be announced as soon as Monday, after last-minute technicalities prevented an agreement on Sunday. China is due to report trade data after two successive days of gains in the local stock market, where around half of the members were halted following the recent selloff.

"We've got yet another deadline, putting the ball back in the Greek court. Markets will be relatively reluctant to call the deal solved," Sam Tuck, a senior currency strategist in Auckland at ANZ Bank New Zealand Ltd, said by phone. "We've got a watching brief on China. It's positive that the authorities didn't feel the need to do anything over the weekend but markets are still clearly nervous and we need to see most of the stock market open. There's still lots of halts."

The euro dropped to 136.47 yen, after soaring 2.3 per cent on Friday, with Finnish Finance Minister Alexander Stubb saying failure to meet the latest deadline could result in Greece's suspension from the currency union. Germany also floated the prospect of ejecting Greece from the euro.

The Aussie fell 0.2 per cent to 74.35 US cents, close to its weakest level since 2009, while the kiwi was down 0.1 per cent to 67.17 US cents following its first weekly advance in 12 weeks.

Greece views the euro area's demands, as expressed in a text from the Eurogroup, as very bad, according to a government official who spoke to reporters on the condition of anonymity. The country's banks have been closed the past two weeks and it is running out of money, with the government in arrears to the International Monetary Fund and its second package of bailout aid expired.

In addition to requirements to cut pensions and raise sales tax, which Tsipras accepted last week, the memo demanded that officials from Greece's creditors return to Athens with full access to government ministers and a veto over relevant legislation, according to the document.

"The situation is extremely difficult if you consider the economic situation in Greece and the worsening in the last few months, but what has been lost also in terms of trust and reliability," German Chancellor Angela Merkel told reporters.

West Texas Intermediate crude slipped to US$52.03 a barrel, while Brent was down 1.2 per cent to US$58. Canada's dollar lost 0.3 per cent.

Four officials party to the Iran talks said legal complexities and technicalities delayed agreement on a deal that could result in an increase in Iranian crude on world markets. The officials asked not to be named in line with diplomatic rules. Iran's benchmark index climbed 1.2 per cent on Sunday to a three-month high.

Futures on the FTSE China A50 Index traded in Singapore late Friday added 0.2 per cent, while contracts on China's CSI 300 Index jumped 8.4 per cent. The Shanghai Composite Index ended last week up 5.2 per cent following three weeks of losses, while the Hang Seng China Enterprises Index, a gauge of mainland Chinese stocks listed in Hong Kong, climbed 6.8 per cent on the last two days of the week. Futures on the Enterprises Index rose 0.1 per cent in most recent trading.

While Chinese shares have tumbled into a bear market, shedding more than US$3 trillion in value over the past few weeks, they're still no bargain to the likes of BlackRock Inc, UBS Group AG and Templeton Emerging Markets Group.

Templeton's Mark Mobius says mainland stocks need to fall further before they're worth buying, while Russ Koesterich, chief investment strategist at BlackRock, said in a July 10 interview that the market hasn't gotten near a level approaching fair value.

Yen-denominated futures on Japan's Nikkei 225 Stock Average slipped 0.5 per cent to 19,995, while futures traded in the Osaka pre-market were bid for 19,950 after closing at 19,860 on Friday. Contracts on Australia's S&P/ASX 200 Index added 0.6 per cent, while futures on the Kospi index in Seoul were up 0.5 per cent. Hang Seng Index futures fell 0.2 per cent.

As well as the Chinese trade data, Japan is due to report on industrial output Monday and Australia posts data on credit cards.

Copper futures maturing in September on the Comex slipped 0.5 per cent to US$2.5245 a pound. Copper sank to a six-year low last week as the slump in Chinese stocks fueled concern over demand, with China the world's biggest consumer of industrial metals. Price volatility in iron ore, Australia's biggest export, climbed to a record last week amid the gyrations in Chinese equities.

The S&P 500 advanced 1.2 per cent on Friday, paring earlier losses to leave it little changed on the week, while the Stoxx Europe 600 index rose 2 per cent to leave it up 1.4 per cent last week. Yields on 10-year US Treasuries rose eight basis points, or 0.08 percentage point, to 2.40 per cent, while similar maturity bund rates jumped 18 basis points to 0.90 per cent.

Risk-off trades will likely dominate bond markets Monday with investors "disappointed there's no concrete deal" on Greece, said Peter Chatwell, a fixed-income strategist at Mizuho International Plc.

The premium demanded on Italian debt over Germany's narrowed by the most in almost three weeks July 10 after Greece's reform proposals appeared set to advance negotiations. New Zealand government bonds due in a decade were little changed, with yields holding at 3.49 per cent Monday, while 10- year Australian yields rose three basis points to 2.97 per cent following Friday's surge in Treasury rates.

US equities maintained gains Friday after Federal Reserve Chair Janet Yellen said in a speech that she still expects to raise interest rates this year and repeated that the subsequent pace of increases will be gradual. The Fed is moving cautiously toward its first interest-rate increase in almost a decade as Ms Yellen weighs conflicting pressures at home and from abroad.

"I want to emphasise that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step," Ms Yellen said in the text of a speech Friday in Cleveland.

The Fed is "dying" to tighten monetary policy as soon as September given the strides being made in the economic recovery, said Byron Wien, vice chairman of advisory services at Blackstone Group LP.

The probability of a Fed rate increase at its December meeting moved up to 67 per cent from 54 per cent on July 8, according to futures data compiled by Bloomberg. For September, the odds increased to 33 per cent from 21 per cent.