Euro strengthens; European stocks erase gains

The euro strengthened Monday, rebounding from a four-day losing streak, as polls showed Greece’s pro-bailout parties have gained ground. European stocks erased gains, Spanish bonds declined and yields on German two-year notes fell to a record low.

The euro rose 0.2% to $1.2538. The Stoxx Europe 600 index lost less than 0.1%, moving lower after gaining as much as 0.9% as banks slumped.

Spain’s IBEX 35 dropped 2.2% while Germany’s DAX index retreated 0.3%. Yields on two-year German bonds slipped to 0.027%.

Spanish bonds fell, pushing 10-year yields to the most relative to benchmark German bonds since the euro was created, amid concern that Spain’s lenders will need additional financial support to weather Europe’s debt crisis.

Spanish Prime Minister Mariano Rajoy said the euro region’s rescue fund should be able to bypass national governments and recapitalize distressed lenders directly, even as he argued that his country’s banks won’t need external help.

U.S. stock markets were shut for Memorial Day.

“Investor sentiment is very cautious, and there is likely to be a lot of volatility with the Greek elections looming over the market,” said Keith Bowman, an equity analyst at Hargreaves Lansdown in London. “A lot of people are sitting on the sidelines.”

Crude oil futures advanced 0.3% to $91.14 a barrel. Gold futures added 0.3% to $1,575.60 an ounce. Copper rose 0.6% to $3.467 a pound.

Emerging-market stocks rose for a third day as opinion polls of Greek voters eased concerns that the country will exit the euro area and speculation mounted that China will take steps to boost its economy.

The MSCI emerging markets index rose 0.9%. The Hang Seng China enterprises index of Chinese companies listed in Hong Kong climbed 1.1%. The Micex index rose 0.8% in Moscow as OAO Lukoil, Russia’s second-largest oil producer, added 2% after first-quarter profit increased 7.7%. Brazil’s Bovespa index gained 1.2%.