European stocks struggled to rise on Monday after Standard & Poor's warned that a recent French proposal to get banks involved in helping Greece would trigger a default on the country's debt.
Sentiment last week was buoyed by an easing in the Greek debt crisis after the country's lawmakers backed austerity measures required from international creditors in return for more bailout cash. Relief that a Greek default has been avoided helped stock markets around the world post one of the best weeks in months _ the Dow Jones index in the U.S. actually had its best week in two years.
However, S&P's warning on Monday that two proposals by an association of French banks "would likely amount to a default" weighed on the European opening despite earlier gains in Asia. U.S. markets are closed for the Thanksgiving Day, meaning that volumes will be limited.
The S&P warning came a week after French banks said they were ready to help Greece by accepting a significant debt rollover. Germany's banks later said they were also considering helping out on similar terms.
Analysts said S&P's position could wreak havoc on Europe's attempts to deal with the Greek debt crisis, especially if rivals Moody's and Fitch come to the same conclusion.
A so-called "selective default" could trigger massive insurance claims on Greek bonds, likely triggering another bout of turmoil in the financial markets.
"The reactions of ratings agencies is still rather unpredictable and the comments from S&P....are likely to keep tensions high," said Joshua Raymond, market strategist at City Index.
The retreat in stocks has not been substantial, though, as investors remain relieved that Greece has avoided a potential default in July. Over the weekend, finance ministers from the eurozone agreed to release a vital installment of aid money for Greece but confirmed they will leave the final decision on a second bailout for the debt-ridden country until later this summer.
Without the euro12 billion ($17.4 billion) from the eurozone and the International Monetary Fund, Greece would have defaulted on its massive debts within days.
In Europe, the FTSE 100 index of leading British shares was up 0.3 percent at 6,008 while Germany's DAX rose 0.1 percent at 7,427. The CAC-40 in France was 0.1 percent lower at 4,004.
The muted response to the S&P warning was evident in the performance of the euro. It was trading 0.3 percent lower on the day at $1.4521 but only suffered a short-lived dip below $1.45 on S&P's announcement.
Though the Greek debt crisis has the capacity to flare up, the coming week is expected to be dominated by an interest rate increase from the European Central Bank and the monthly U.S. nonfarm payrolls data.
On Thursday, the ECB is expected to raise its main interest rate by a quarter of a percentage point for the second time since April, taking it up to 1.5 percent as it tries to rein in rising inflation levels. Most interest will center on what the bank's chief Jean-Claude Trichet says in his ensuing press conference.
On Friday, attention will turn to the U.S. jobs data, which often set the stock market tone for a week or two after their release. After a string of mostly poor economic indicators in recent weeks, investors will be looking for indications on the health of the U.S. recovery.
"A better than expected payrolls number on Friday has the capacity to lend further support to risk appetite, but in all likelihood the view that the U.S. economy still faces a prolonged period of slow growth rates is likely to prevail," said Jane Foley, an analyst at Rabobank International.
Earlier in Asia, Japan's Nikkei 225 index added 1 percent to 9,965.09, having breached the psychologically important 10,000 mark earlier in the day for the first time since May 5. Sentiment was lifted by optimism about the U.S. economy after manufacturing figures last Friday from the Institute for Supply Management buoyed hopes about a possible end to the soft patch.
South Korea's Kospi added 0.9 percent to 2,145.30 and Hong Kong's Hang Seng climbed 1.7 percent to 22,770.47.
Mainland Chinese shares extended gains as investors interpreted comments by vice premier Wang Qishan on the slowing economy, and news of stalling growth in non-manufacturing industries, as a sign Beijing may relax monetary policy. The Shanghai Composite Index jumped 1.9 percent to 2,812.82 and the Shenzhen Composite Index surged 2.3 percent to 1,188.91.
Oil prices were fairly steady alongside the tepid performance in stock markets, particularly in Europe. Benchmark crude for August delivery was up 16 cents to $95.10 in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.