* Euro-zone stocks, bonds start to recover losses
* Traders point to lingering hopes for a Greek deal
* Asia shares rise, China breaks losing streak (Writes through, updates prices, adds rebound)
By Lionel Laurent
LONDON, June 30 (Reuters) - Euro zone stocks and low-rated bonds recovered the worst of their losses on Tuesday but remained on edge as Greece looked set to default on a debt repayment to the IMF and plunge deeper into financial crisis.
The breakdown of talks between Athens and international creditors over the weekend has led Greece to close its banks and impose capital controls. It has provoked market jitters worldwide, with Greeks due to vote in a referendum on Sunday that EU partners say will amount to a choice between staying in the euro or leaving.
There have been few signs of market panic even as the uncharted territory of a Greek exit from the euro zone becomes more likely, with investors citing Europe’s improved ability to fight financial contagion since the height of the euro debt crisis in 2011.
Top euro zone stocks were up 0.2 percent at 1148 GMT after Greece’s finance minister said Athens would not repay the International Monetary Fund debts due on Tuesday but added he hoped for a deal with international creditors. German Chancellor Angela Merkel said the door was open for talks.
U.S. equity futures pointed to a higher open, though the euro was down against the U.S. dollar as hedge funds stepped up sales.
“We are relatively bullish,” said Antonin Jullier, head of equity trading strategy at Citi. He said a Greek ‘Yes’ vote would be a positive outcome but a ‘No’ was likely to see the European Central Bank step in with tools to fight contagion.
“This is a complex situation and there is a lot of volatility; given the binary outcome we expect many investors will wait it out, but we already see value at current levels.”
Bank stocks were in positive territory and peripheral euro bonds recovering from losses after reports of last-minute contacts between Athens and Brussels, just hours before Greece’s international bailout package was due to expire, though a German government official said it was “too late” for an extension.
While Greek ripples were also a drag on investor sentiment in Asia, Chinese stocks broke a punishing three-day losing streak as regulators and the government stepped up efforts to prevent the past few weeks’ plunge from inflicting further damage on an already slowing Chinese economy.
“Even after these market swings, a Greek exit is still not fully discounted as a positive outcome is still possible,” BNP Paribas Investment Partners said in a note to clients.
“With a majority of Greeks in favour of staying in the eurozone, there is a decent probability of a referendum outcome in favour of the creditors’ proposals. But until the results are known, we are likely to see continued market volatility.”
The MSCI All-Country World equity index was flat. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.1 percent but remained near a five-month low hit on Monday. Japan’s stock index rose 0.6 percent while South Korea gained 0.7 percent.
In commodities, oil futures hovered below three-week lows and gold failed to attract strong safe-haven bids, even with ongoing Greek uncertainty. London nickel slid 8 percent to six-year lows and Shanghai nickel also tumbled after the Shanghai exchange broadened delivery options.
A risk gauge, the CBOE Volatility index, spiked overnight to its highest levels since February.
“There is still too much uncertainty in the markets and investors would be watching developments in Greece and China very carefully before jumping in,” said Karine Hirn, Hong Kong-based partner of Swedish group East Capital, a $3.5 billion fund management firm. (Reporting by Lionel Laurent; Editing by Mark Trevelyan)