The oversold euro rose to three-week highs against the dollar on Monday and world stocks inched up as signs of progress on a Greek debt restructuring deal fuelled optimism about efforts to contain the euro zone crisis.
Oil prices gained as European Union foreign ministers agreed to ban imports of Iranian oil from the start of July to pressure Iran over its nuclear ambitions, a move that renewed threats by Teheran to block a vital oil export route.
Investors sold safe-haven U.S. bonds, while stocks on Wall Street ended flat.
In Europe, Germany and France pushed for a deal between Greece and its private creditors and said they remained dedicated to a new bailout needed by March to stave off a disorderly default. Euro zone finance ministers met in Brussels to discuss the terms of a Greek debt restructuring.
Greece needs additional aid to be able to return its debt to sustainable levels. Without the aid, Athens will not be able to pay back 14.5 billion euros in maturing bonds in March - which would trigger a messy default that would hurt the entire euro zone and send tremors beyond the 13-year-old single currency bloc.
Optimism that Greece will reach a deal with its creditors led investors to pare bets against the euro, even though most maintained a negative outlook.
The euro was up 1.3 percent at $1.3033 and hit its strongest level since early January.
The euro was supported by investors taking profits on short positions, which have been running at record highs for four weeks, strategists said.
Sentiment continues to outweigh fundamentals, at least for the time being, said Brad Bechtel, managing director at Faros Trading in Stamford Connecticut. This euro short-covering sentiment-driven rally will likely not be sustainable over the medium-term, but may persist over the short-term.
Over the medium-term the euro should remain under pressure with the ECB more accommodative and providing liquidity.
In stocks trading, the broad MSCI world equity index <.MIWD00000PUS>, which is up 5.6 percent for the year so far, gained 0.5 percent on the day, while U.S. stocks ended flat.
Upbeat sentiment over Greece was offset by profit-taking in U.S. stocks after the S&P 500 concluded its best week since Christmas on Friday.
The Dow Jones industrial average <.DJI> ended down 11.66 points, or 0.09 percent, at 12,708.82. The Standard & Poor's 500 Index <.SPX> was up 0.62 point, or 0.05 percent, at 1,316.00. The Nasdaq Composite Index <.IXIC> lost 2.53 points, or 0.09 percent, at 2,784.17.
U.S. stock investors also awaited earnings later this week from bellwethers such as Apple
Analysts, worried about the effect of Europe on fourth-quarter results, have been reducing forecasts since the summer.
The pan-European FTSEurofirst 300 <.FTEU3> index of top shares finished up 0.5 percent.
Oil prices ended higher, with ICE Brent crude for March delivery settling at $110.58 a barrel, gaining 72 cents, or 0.66 percent.
The EU also imposed a number of other economic sanctions against Iran, joining the United States in measures aimed at slowing Tehran's nuclear development program.
The ban of Iranian oil by the EU ministers elicited further threats from Teheran to close the Strait of Hormuz shipping channel. The move could hurt Greece, Italy and other economies that depend on Iranian oil.
U.S. BONDS FALL, GOLD GAINS
U.S. bond prices fell as European banks used ECB funding to buy more Spanish and Italian bonds. The U.S. government's plan to auction $99 billion of Treasury notes this week gave investors another reason to sell.
Benchmark 10-year notes traded 11/32 lower in price, with yields rising to 2.07 percent from 2.03 percent late Friday. The yields touched 2.09 percent, marking the highest in over six weeks.
Risk assets bounced, said William O'Donnell, head of U.S. rates strategy at RBS Securities in Stamford, Connecticut. This spasmodic price action may be what we're in for until the Federal Open Market Committee fills in the templates for their rate, growth and inflation projections on Wednesday.
Earlier in the day, the front month German Bund future fell 19 ticks to 137.93, while 10-year Italian government bond yields were down 10 basis points at 6.17 percent.
Gold, also considered a safe-haven asset, rose 1 percent to a six-week high, boosted by technical buying, as the euro rallied.
Spot gold was up 1.1 percent at $1,676.76 an ounce. Its session high of $1,681.16 was the highest price since December 12.