By Chuck Mikolajczak
NEW YORK (Reuters) - Wall Street rose modestly on optimism an agreement over Greek debt was drawing closer and as data pointed to renewed life in the U.S. economy, while German debt yields climbed after comments from European Central Bank President Mario Draghi.
Greece's international creditors signalled on Wednesday they were ready to compromise to avert a default even as Athens warned it might skip an IMF loan repayment due this week.
German debt yields moved as high as 0.887 percent, a day after their biggest jump in nearly three years, as the ECB raised its inflation forecast for 2015. Draghi said the central bank saw no reason to adjust its monetary policy stance after a recent rise in bond yields in Europe.
In tandem with higher European yields, U.S. Treasury yields hit their highest since November. U.S. 10-year notes last fell 26/32 in price to yield 2.3552 percent.
"You've got to figure that given rates backing up here and the euro rallying is a risk off trade with the anticipation that the Greek situation is going to be resolved," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
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"A strong euro could mean Greece is leaving but the bond market, the money is clearly coming out of that market today, that is really where all the activity is and it is big activity."
The dollar's recent woes continued, spurred by better-than-expected inflation figures in the euro zone that also battered sovereign debt. It marks the second such jump in both the euro and sovereign yields in the last six weeks.
The greenback fell 0.4 percent against a basket of major currencies.
The euro extended gains against the dollar Wednesday, up 0.85 percent to $1.1248 after hitting a high of $1.1284. The euro has gained about 3 percent against the greenback in the last two days, on track for its biggest two-day percentage gain since March 2009.
The selloff in Europe and U.S. government debt and the sharp move in the euro mirrors the activity from mid-April to mid-May. Investors have bet heavily on dollar and bond rallies to continue, and have since shifted to avoid big losses.
Wall Street was higher in afternoon trading, partly lifted by data showing private employers picked up hiring in May. The report comes ahead of the U.S. Labor Department's more comprehensive non-farm payrolls report on Friday.
The Dow Jones industrial average rose 87.39 points, or 0.49 percent, to 18,099.33, the S&P 500 gained 6.09 points, or 0.29 percent, to 2,115.69 and the Nasdaq Composite added 24.73 points, or 0.49 percent, to 5,101.25.
Other key world equity markets also gained and were generally calmer after Tuesday's sell-off in benchmark government bonds and mauling of the dollar by the euro.
MSCI's all-country world index of stock performance in 46 countries was up 0.32 percent.
The pan-European FTSEurofirst 300 stock index closed down 0.12 percent while Germany's DAX <.GDAXI> gained 0.8 percent. Athens' main stock index <.ATG> jumped 4.13 percent.
(Editing by Nick Zieminski and Bernadette Baum)