Optimism about the recovering U.S. economy failed to spill over into European stock markets on Tuesday as investors remained jittery about whether Greece's aid package will work.

The euro slipped to around one-year lows against the dollar and yields on euro zone government bonds were flat to lower.

Investors were still digesting the weekend agreement among European countries and the International Monetary Fund to a 110 billion euro aid package to Greece.

The European Central Bank also agreed to take Greek assets collateral, even though they are rated as junk.

In exchange, Athens has promised to carry out spending cuts and tax hikes worth 30 billion euros over three years, on top of belt-tightening measures already taken.

But doubts remain about whether this can be achieved.

The package has finally arrived and ... the ECB is bending over backwards to be accommodative, HSBC strategist Phil Poole wrote in a note.

But, unfortunately, these measures were not delivered early enough to prevent Greece from being priced out of financial markets and considerable damage being done which has made the longer-term adjustment even more difficult.

MSCI's all-country world stock index <.MIWD00000PUS> was down 0.1 percent, led by a 0.2 percent loss on the FTSEurofirst 300 <.FTEU3> index of top European shares.

Japan's market was closed for a holiday.

Not for the first time in recent weeks, the concern about Greece and the euro zone overshadowed otherwise bullish news.

U.S. stocks staged a broad rally on Monday that drove the S&P 500 <.SPX> to its best day in two months after manufacturing, consumer spending and construction data all instilled confidence in economic recovery.


The euro hovered near one-year lows, pressured by the sovereign debt crisis within its borders.

Investment advisers at RGE suggested that clients build short positions on the currency on any sign of strength.

First, the prospect of the Greek debt restructuring raises a question mark as to the euro's status as a key reserve currency, they wrote.

Second, we believe the Greek crisis is only the tip of the iceberg. The debt sustainability problems in other euro zone countries are equally serious while the macroeconomic limitations are often more severe than in Greece.

The euro was down 0.2 percent at $1.3164.

Benchmark euro zone government bonds were steady to stronger.

Two-year bond yields were a flat at 0.804 percent, with 10-year yields a quarter of a basis point lower at 3.046 percent.

(Editing by Mike Peacock)