By Marc Jones
LONDON (Reuters) - Hopes that Greek was nearing a aid-for-reforms deal helped European shares add to their best day in over a month and pushed down bond yields on Thursday. Expectations the U.S. was edging towards an interest rate increase pushed up the dollar.
U.S. stock futures
At the other end of the policy spectrum, the New Zealand dollar > tumbled to a five-year low after its central bank cut interest rates for the first time in four years. South Korean shares gained as it cut rates to a record low. Underlying both moves was sluggish global demand, especially in China.
Fixed asset investment in China grew from January to May at its slowest rate in over 14 years, new data showed, although industrial output and retail sales growth showed signs of steadying after a recent dive.
Europe's main bourses <0#.INDEXE> picked after a slow start. The benchmark FTSEurofirst 300 <.FTEU3> was last up 0.6 percent, as hopes Greece was closing in on a deal with the European Union, International Monetary Fund and European Central Bank. Greek stocks surged 7 percent.<.ATG>
The euro > dropped below $1.1260 as the dollar <.DXY> got a lift before the U.S. jobless claims and retail sales figures.
A Fed rate increase would be its first in almost a decade. That would mark a change in the flow of easy money that has driven world stock and bond prices to record highs.
"The day is going to be dominated in the end by whether signs of spring in the U.S. economy have continued," said Kit Juckes head of global currency strategy at Societe Generale.
"And from everything overnight, it's the chill from China. There could be further downside in Australia and New Zealand (currencies) and we could be talking about Asian FX weakness as a theme going forward."
KIWI CRUSH
Overnight, Tokyo's Nikkei <.N225> had added 1.4 percent. Australian shares gained 1.3 percent and South Korea's Kospi advanced 0.3 percent, as they reacted to regional economic news and followed Wednesday's gains by Wall Street.
New Zealand's dollar slid more than 2 percent on the day to a five-year low of $0.7000 > after the RBNZ rate cut, which few economists had expected. The currency got a further hit when the RBNZ said it would ease again if necessary.
"The RBNZ has again proved to be more flexible than the market gives it credit for," said Michael Turner, a strategist at RBC Capital Markets.
The yen gave back some of its previous session's gains against the dollar, which came after Bank of Japan Governor Haruhiko Kuroda said the yen was "very weak."
The dollar was last up 0.8 percent at 123.67 yen >, but still some distance from a 13-year high of 125.86 touched Friday on robust U.S. non-farm payrolls data.
The stronger dollar weakened commodities. Brent crude oil dropped below $65 a barrel and metals markets from industrial copper to precious gold all lost ground.
German benchmark 10-year Bund yields > dipped in line with the euro, falling below 1 percent. Italian, Spanish and Portuguese bond yields also fell in their biggest move in almost a month.
(Editing by Larry King)
