By Marius Zaharia
LONDON (Reuters) - Yields on peripheral euro zone bonds dipped, European stocks were steady and the euro inched higher on Wednesday before a congressional testimony by Federal Reserve chief Janet Yellen and a Greek parliament vote on the terms of a third bailout.
The dollar was little changed against a basket of major currencies, trading at 96.68 before Yellen's speech, which might offer more hints about the timing of a U.S. interest rate hike after a surprise fall in U.S. retail sales on Tuesday.
Investors will be keen to see to what extent the prolonged uncertainty over Greece's debt crisis and the slump in Chinese stocks have affected the Fed's outlook.
"The latest developments in Greece and China have wider ramifications as they could affect the Federal Reserve's decision to normalise policy," JPMorgan Asset Management global strategist, Thushka Maharajat, said.
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"We maintain our view of a September rate increase, but that view has become more balanced. It is predicated on Europe ... containing risks from the Greek crisis."
The Greek parliamentary vote is seen as the major hurdle to a final agreement for the bailout, which could end -- at least temporarily -- months of intense uncertainty, volatility and frequent risk aversion in financial markets.
The pan-European FTSEurofirst 300 index was up 0.04 percent to 1,581.04, having risen for five days in a row. Yields on German Bunds dipped 2 basis points to 0.82 percent. The euro, which has lost 1.5 percent this week, was up 0.15 percent at $1.1025.
Ten-year yields on Spanish, Italian and Portuguese bonds, seen as vulnerable to Greek contagion, fell 2-3 basis points to 2.06 percent, 2.08 percent and 2.75 percent respectively.
"The probability does favour a passage of the necessary legislation on the austerity measures given the opposition support for Tsipras but going forward there are questions about their ability to pass legislation on reforms," Rabobank rate strategist, Richard McGuire.
An International Monetary Fund study published on Tuesday showed that Greece needs far more debt relief than European governments have been willing to consider.
CHINA GROWTH
China's second quarter gross domestic product grew an annual 7 percent, flat on the previous quarter and slightly higher than analyst forecasts. Fixed-asset investment and industrial output growth also beat economists' forecasts.
But Shanghai's benchmark composite index fell 3 percent, and the CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 3.5 percent.
Further stimulus is expected after the quarter ended with a savage correction that shaved about 30 percent off stock market's value since last month, before Beijing's support stemmed the freefall for a while.
"Stock investors at present care more about what the government policy towards the market is, whereas the connection between the economy and the market has somehow loosened," Haitong Securities' senior stock analyst, Zhang Qi, said.
Oil prices dipped as the market prepared for a gradual increase in supply after Iran signed a nuclear deal with six world powers under which sanctions imposed by the United States, the European Union and the United Nations are to be lifted in exchange for curbs on Tehran's nuclear programme.
Brent crude was down 41 cents from its previous settlement, trading at $58.10 a barrel. U.S. futures were down 35 cents at $52.69.
(Additional reporting by Lisa Twaronite in Tokyo and Emelia Sithole Matarise in London; Editing by Louise Ireland)
