A rally in European equities and the euro currency ran out of steam on Friday as investors combed through a raft of corporate earnings from bellwethers such as General Electric while keeping an eye on debt talks between Greece and its creditors.

Futures for the S&P 500 and the Dow Jones were down 0.18 percent and 0.11 percent respectively at 1230 GMT after GE posted fourth quarter revenue that missed Wall Street expectations, sending its shares down about 3 percent in premarket trading.

However, a strong outlook from IBM and decent results from Intel Corp and Microsoft Corp helped limit the retreat, with futures for the Nasdaq 100 up 0.13 percent.

The FTSEurofirst 300 index of top European shares was down 0.3 percent, halting a week-long rally, while the Euro STOXX 50 volatility index, Europe's 'fear gauge' known as the VSTOXX, dropped to 25.7, a level not seen since early August, signalling a rise in investor appetite for risk.

Risk aversion is declining, and the wild swings between 'risk on' and 'risk off' trades that we've seen over the past year should slowly fade away sometime this year, said Franck Nicolas, head of global asset allocation at Natixis AM, which has 525 billion euros ($677 billion) under management.

German Bund futures fell 0.5 percent, dragged by mounting expectation of an imminent deal between Greece and its private bondholders over a bond swap deal that would prevent the country from sinking into a chaotic default and ease the euro zone's debt crisis.

There are encouraging signs the Greek PSI (private sector involvement) deal may be achieved soon, possibly even today and that's likely to keep Bunds on the defensive, said Nick Stamenkovic, a rate strategist at RIA Capital Markets.

It will cause some relief in the markets but there are still problems ahead for Greece, he added, calling the country's fiscal metrics horrible and its growth picture pretty dire.

Five-year Italian credit default swaps fell 11 basis points to 469 bps, according to Markit, while the Spanish equivalent shed 8 bps to 375 bps.

The cost of insuring debt from France and Austria, both of which recently lost their triple-A rating from Standard & Poor's, also fell.

RETREATING FROM TWO-WEEK HIGH

The euro slipped from a two-week high against the dollar, hovering just above $1.29, as a number of investors cashed in profits on a short-covering rally but expectations Greece may be nearing a debt deal looked set to offer support to the single currency.

So far this week the euro has gained more than 2 percent, putting it on track for the biggest weekly rise since October after solid bond auctions in Spain and France on Thursday boosted risk appetite.

This is just profit-taking -- we pretty much had a straight-line rally since Monday morning. We could see another 40-odd points on the downside but I think we will hold between $1.2860 to $1.30, said Geoff Kendrick, FX strategist at Nomura.

Because the outcome (of the talks) is so binary, market sentiment tends to go one way or the other. We certainly see it as more risk-on at the moment.

The dollar against a basket of major currencies was slightly firmer, up 0.2 percent.

On the commodity front, U.S. crude oil was down 0.6 percent while gold slipped back below $1,650 an ounce, tracking the euro's dip.