* Greek, U.S. debt woes weigh; Greek T-bill yield spikes
* China warns on inflation dangers, forex reserves
* European stocks recoup some losses
By Jeremy Gaunt, European Investment Correspondent
LONDON, April 19 (Reuters) - Debt woes on both sides of the
Atlantic and new signals from China on inflation dangers weighed
on markets on Tuesday, though strong earnings saw European
shares claw back some of the previous day's losses.
Greece sold 1.6 billion euros of three-month debt, but was
forced to pay more than 4 percent, underlining growing unease in
the market over a potential restructuring.
The dollar was weaker against a basket of major currencies
<.DXY> after climbing on Monday as investors engineered a
classic rush to safety even as Standard & Poor's threatened to
downgrade U.S. debt.
European stocks <> bounced back, but only in the
context of having fallen nearly 2 percent on Monday as the
investor mood remained cautious. Japan's Nikkei <> closed
down nearly 1.3 percent.
S&P stirred up investor concerns on Monday when it changed
its outlook on the United States to negative from stable,
threatening the future of its prized AAA credit rating.
The threat brings into focus the huge U.S. budget deficit
and the difficulty that Washington has in paring it down. The
deficit is a key element in the global imbalances that currently
worry many investors and policymakers.
There was no direct reaction to the S&P move on Tuesday from
Beijing, which -- in counterpoint -- holds vast reserves of U.S.
Treasuries, though the head of China's central bank said the
country should diversify investments as its some $3 trillion of
foreign exchange holdings had grown too large.
Another Chinese ratesetter said inflation pressures gave
further scope for a rise in banks' reserve requirements
following seven hikes -- together with four increases in
benchmark interest rates -- since last October.
"Discussions on the U.S. losing its AAA-status have been
active for two years, if not longer. S&P's move might have been
a jolt, but should not really be a true surprise," said David
Watt, senior currency strategist at RBC Dominion Securities.
Equity investors, meanwhile, focused on the earnings season.
In Europe, there was some boost from LVMH <LVMH.PA> and
Burberry <BRBY.L>, which both beat consensus forecasts.
But results lay ahead in the United States from banking
heavyweight Goldman Sachs <GS.N> and technology bellwethers IBM
<IBM.N> and Intel Corp <INTC.O>.
The FTSEurofirst 300 <> was up half a percent.
"We were hit down big time yesterday and I expect to see
some bargain hunting," said Simon Clark, trader at ETX Capital.
"But, we have Goldman Sachs <GS.N> later and there could be
some caution before that. One negative comment from anyone and
we could be back down."
EURO STABLISES
The euro recovered somewhat from the previous day's
sell-off, but the region's debt problems remained in focus and
Euro zone core bond yields rose .
The single currency edged up to $1.4270.67 <EUR=>. Overall,
it has pulled back sharply, having hovered at a 15-month high
around $1.4520 for the past week.
"The European debt crisis is in the market's focus again,
and people are concerned there is no lasting solution.
Meanwhile, even negative news in the U.S. isn't putting too much
pressure on the dollar anymore," said Lutz Karpowitz, currency
analyst at Commerzbank in Frankfurt.
(Additional reporting by Naomi Tajitsu, Joanne Frearson
William James; Editing by John Stonestreet)
