EUROPE MARKETS: European Stocks Close Higher As Hopes Rise For Greece Deal

By Victor Reklaitis, MarketWatch , Tommy Stubbington

But Germany's Schaeuble dismisses speculation of imminent pact

NEW YORK (MarketWatch) -- European stocks closed higher Tuesday, with analysts giving credit to hopes that Greece's government will reach a deal with its creditors.

The pan-European Stoxx Europe 600 finished up 0.6% at 372.94, bouncing back from a slide on Monday, when investors fretted over the Greek drama.

Markets appeared to get a lift from senior Greek government officials telling The Wall Street Journal that Greece will proceed with the privatization of the country's main port. The sale of the stake in the port would mark a U-turn for Greece's new government, which had apparently set itself on a collision course with lenders by promising to roll back many austerity measures and reforms that were a condition of its bailout.

But German Finance Minister Wolfgang Schaeuble dismissed speculation around a possible deal ahead of a key meeting on Wednesday, sparking some selling, though stocks went on to regain their footing. Analysts have said markets will remain nervous ahead of an end-February deadline to extend the Greek bailout.

"The prospect of another act in the Greek drama is likely to weigh on markets. We expect a deal to be done, but probably only after a lot of wailing and gnashing of teeth," said Paul Donovan, an economist at UBS.

Illustrating the optimism on Tuesday around Greece, the Global X FTSE Greece 20 ETF (GREK) was up 6% at last check. Germany's DAX finished up 0.9% at 10,753.83, and France's CAC 40 closed 1% higher at 4,695.65

Among individual stocks, UBS Group AG (UBS) bucked a generally positive trend among banks, falling after the Swiss bank reporting higher profit on a tax boost, but also warned that a rising franc would pressure profitability and performance targets.

Outside the euro area, a drop in oil prices kept a lid on the U.K.'s oil and gas-heavy FTSE 100 , which edged lower to close down 0.1% at 6,829.12. U.S. stocks, meanwhile, gained ground amid the Greece deal hopes.

The impact of Greece's renewed debt crisis on other countries' assets within the eurozone has been modest, and the euro (EURUSD) has steadied after steep declines earlier in the year. The common European currency was trading slightly lower against the dollar at $1.1318 on Tuesday.

"Spillover effects to the eurozone as a whole" have been limited, said Lee Hardman, a currency analyst at Bank of Tokyo Mitsubishi.

"However, if Greece were to leave the eurozone it would materially increase downside risks for the euro in the near-term and threaten financial stability within the eurozone," he said.

Subscribe to WSJ: http://online.wsj.com?mod=djnwires