Earnings, Greece Weigh on European Stocks

Earnings also weighed on European shares. Richemont warned its net profit for the year would drop by 36 per cent and Kering posted a bigger-than-expected drop in sales, and both luxury groups were among the worst performers.

Tesco was not to blame for the drop, however. Its shares rose as much as 2.5 per cent in early trade after a record 6.4 billion pound that the market bet would mark an end to a run of bad news from Britain's largest retailer.

"The stock is up as investors are thinking that the worst is behind them and good news will follow from here now," said Naeem Islam, chief market analyst at Avatrade.

"The positive momentum from Asian markets filtered into European markets at first. But traders are still taking a very cautious approach now."

In Asia, China's leading index rose 2.4 per cent to a seven-year high and Japan's Nikkei closed above the 20,000 point level for the first time in 15 years.

Asian stocks continued to draw support from Chinese measures to spur lending and combat a slowing economy. On Sunday, China's central bank cut the reserve requirement ratio for the country's lenders for the second time in two months.

The Shanghai Composite Index was also spurred by comments from state media which declared the bull market "has just begun."

Greek woes

The Greek government's looming cash crunch weighed on local markets as Greek stocks hit a three-year low and the two-year bond yield hovered around 30 per cent. All other peripheral and core euro zone bond yields were lower, however.

European finance ministers meet to discuss Greece this week for what had been billed as a crunch meeting. The deadline will be pushed back, however, and the market remained cautious after Greek finance minister Yanis Varoufakis cited signs of convergence on Tuesday.

European Central Bank board member Benoit Coeure said the ECB will continue to fund Greek banks as long as they were solvent and dismissed the growing talk that Greece might ditch the euro.

Germany's benchmark 10-year yield slipped one basis point to 9 basis points, while the 10-year US yield fell back two basis points to 1.89 per cent.

Spanish, French and Italian yields fell, with investor cash to be ploughed back into these countries' bonds between now and the end of the month reaching as much as 65 billion euros, according to Citi analysts' estimates.

The euro inched up to $1.0750.

"At the margin, the commentary from the EU/Greek talks was hopeful, though not hopeful of any resolution this week," said SocGen's currency analysts, noting that as long as $1.0850 resistance held the trend could still be lower.

The Australian dollar was the biggest currency mover. It gained almost 1 per cent to $0.7788 after core inflation rose 0.6 per cent in the first quarter, higher than a forecast of 0.5 per cent, and possibly taking a rate cut next month off the table.

In commodities, crude oil extended losses as Middle East tensions eased after Saudi Arabia announced an end to air strikes against Iran-allied Houthi rebels in Yemen, though residents reported a further strike on Thursday.

Brent crude was down 0.75 per cent at $61.62 a barrel after tumbling more than 2 per cent overnight, and US crude futures were down 1.2 per cent at $55.94 a barrel.