* Stocks rebound on signs Greece to obtain bank funding
* Oil falls below $61 barrel as other commodities weigh
* Treasury prices tumble in anticipation of Fed rate hike (Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Feb 17 (Reuters) - The euro rebounded on Tuesday and global equity markets recovered to trade slightly higher on signs Greek banks will continue to receive emergency funding despite a breakdown in debt talks between Athens and euro zone finance ministers.
U.S. Treasuries tumbled further while Wall Street rebounded on news Greece said it intended to ask Wednesday for an extension of its loan agreement with the euro zone that would be separate from a full bailout program, a source in Brussels said.
U.S. Treasuries prices have declined a total of 3 percent in eight of the last 10 sessions, largely in anticipation that the Federal Reserve will raise benchmark U.S. interest rates as early as June. The decline is the biggest cumulative loss since December 2010.
Conversely, U.S. equities have rallied, with major indexes last week notching a second week of solid gains and the S&P 500 hitting a new closing high Tuesday. The advance came on signs of progress for a Greek debt deal and reduced tensions between Russia and Ukraine, even though a ceasefire agreement reached last week in Minsk was unraveling rapidly.
The low rate of return on fixed-income securities is leading investors into equity markets, said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
“Because we’re still waiting to see what happens with Greece, money seeks out the better value and it’s ending up in the equity market,” Hellwig said. “Because bonds are so low globally, it creates an interest in equities that perhaps the risk is worth taking to get the higher return.”
On the whole investors kept their composure on expectations a compromise would eventually be reached even as Greek markets slipped, with the main Athens stock index falling as much as 4.7 percent before closing down 2.5 percent.
Italian and Spanish 10-year government debt yields rose slightly, while early safe-haven buying of U.S. Treasuries on concerns about Greece and Ukraine dissipated.
A war of words between Greece and Germany escalated, with Athens’ new leftist prime minister rejecting what he called “blackmail” to extend an international bailout and vowing to rush through laws to reverse labor reforms.
Traders, however, said the market was pricing in the prospect of a last-minute deal on Greece.
“The costs of a Greek exit (from the euro zone) are so great for Greece, they will eventually strike a deal. Yesterday’s meeting should not be seen as a failure, but more part of a necessary process,” said James Butterfill, global equity strategist at Coutts in London.
MSCI’s all-country world stock index rose 0.1 percent, rebounding from earlier losses, while the pan-European FTSEurofirst 300 index closed up 0.18 percent at 1,504.86.
The Dow Jones industrial average closed up 28.23 points, or 0.16 percent, to 18,047.58. The S&P 500 rose 3.35 points, or 0.16 percent, to 2,100.34 and the Nasdaq Composite gained 5.43 points, or 0.11 percent, to 4,899.27.
Benchmark 10-year U.S. Treasury notes were down 1-2/32 in price to yield 2.1414 percent, up from 2.05 percent late on Monday.
The euro rose 0.54 percent against the dollar to $1.1413 and against sterling it bounced from within a whisker of a seven-year trough of 73.69 pence set last week.
The euro zone single currency was also helped by a German ZEW survey that showed analyst and investor sentiment rose in February to its highest in a year.
Spot gold fell as much as 2.3 percent to its lowest since Jan. 6 at $1,203.03 an ounce in earlier trade and was last down 1.9 percent at $1,208.15.
U.S. gold for April delivery settled down 1.5 percent at $1,208.60 per ounce.
Oil futures rebounded on short-covering as worries about euro zone stability receded. Threats to Middle East crude output and a declining U.S. rig count appeared to spur investors despite global inventory data suggesting an oversupply of up to two million barrels per day, analysts and traders said.
Brent crude rose $1.13 to settle at $62.53 a barrel. U.S. crude rose 75 cents to settle at $53.53 a barrel. (Reporting by Herbert Lash; Editing by James Dalgleish)