Europe Stocks, Euro Hit as Greek Talks Stumble -- 5th Update

By Josie Cox

Global markets were rocked Monday after talks between Greece and its European creditors collapsed over the weekend, sparking fresh fears of an imminent default.

The Stoxx Europe 600 index ended the session off 1.6%, led lower by a 4.7% slide on Athens main index. In the U.S., the S&P 500 was 0.5% lower as European markets shut for the day.

The falls came after European officials Sunday dismissed the Greek government's latest proposals, describing them as "vague and repetitive." Last week the International Monetary Fund pulled out of the Greek bailout talks, citing lack of progress, which had made markets jittery.

"We have always argued that a Greek deal would only occur at one minute to midnight," Rabobank rates strategists wrote in a note. "Yet it now looks like 23:58 and counting."

Shares in Greek banks stocks led the losses. Alpha Bank AE, Eurobank Ergasias SA, National Bank of Greece SA and Piraeus Bank SA all fell between 5.7% and 12.2% Monday. This hefty drop means they have now all declined between 30% and 62% since the start of the year.

Greek bonds also tumbled, sending the yield on the country's two-year debt up to almost 29%, close to 3 percentage points higher on the day and at a level last seen in April. The yield on the country's 10-year benchmark bond rose close to 1 percentage point to 12.4%. Yields rise as bond prices fall, and an inverted yield curve, where shorter-dated bonds yield more than longer- dated, signals that investors see a heightened chance of default.

Concerns about Greece also hit the euro, which was trading around 0.2% lower late Monday, at around $1.124 to the buck.

Several strategists said that the currency would likely remain under pressure until a resolution is found.

"Creditors are getting tired with the negotiations," said Eirini Tsekeridou, an analyst at Swiss private bank Julius Baer. Ian Williams, economist and strategist at brokerage Peel Hunt, said that hopes for a compromise are diminishing, while strategists at BNP Paribas wrote in a note that "the risk of unfavorable scenarios, such as a default, has undoubtedly risen."

Attention this week will be on Thursday's Eurogroup meeting, ahead of a Brussels summit on June 25, and a Greek debt repayment deadline on June 30.

Credit Suisse economists said Thursday's meeting would likely be "one of the last chances to rubber stamp an agreement between Greece and its creditors."

"With the Greek government still living in its own world, hopes for a solution are evaporating," said Demetrios Efstathiou, a senior economist at Standard Bank. He added, however, that he still thinks an agreement will be reached, but only "at the very last minute" and "not a minute earlier."

Back in debt markets, the yield on the 10-year German government bond was around 0.03 percentage point lower at around 0.81% on Monday. Yields on Spanish and Italian 10-year debt, which some strategists say could be most affected by a Greek default, were higher at around 2.36% and 2.32% respectively.

"From a market perspective the concern is that if Greece was to default and/or exit, then it might encourage others to do the same," said Gary Jenkins, a credit strategist at London-based asset manager LNG Capital. That, he said, "puts the entire eurozone project at risk of collapse."

Tanguy Le Saout, head of European fixed income at Pioneer Investments, meanwhile, warned that markets were still being too "complacent" about the potential "knock-on effects of the problems in Greece."

He said on Monday that he had positioned for a deterioration in the performance of Spanish and Italian debt.

-- Chiara Albanese contributed to this article

Write to Josie Cox at josie.cox@wsj.com

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