The euro fell broadly and world stocks slipped from a 1-1/2 week high on Thursday after European officials said a selective default for Greece was a live possibility, raising concerns about implications for the banking sector, according to Reuters. A survey showing the euro zone's private sector grew at its weakest pace in almost two years and nervousness surrounding U.S. debt talks also sapped investors' tolerance for risk. Ahead of a crisis summit of euro zone leaders, Dutch Finance Minister Jan Kees de Jager said a short-term or selective default for Greece, previously opposed by the European Central Bank, was now a possibility. EU sources said the European Central Bank is willing to let Greece slip into temporary default. Germany and France will later present details of the accord they thrashed out over seven hours on Wednesday to their fellow leaders, who are trying to prevent fears of a Greek default from poisoning access to the bond market for bigger euro zone states such as Italy and Spain . "The market was long and is quite nervous. This talk of the possibility of a default and the package not being quite as neat as people expected from a banking point of view is not helping," said Sebastien Galy, FX strategist at Societe Generale. The MSCI world equity index fell 0.1 percent on the day, having hit a 1-1/2 week high earlier. European stocks fell 0.1 percent while emerging stocks lost 0.2 percent. U.S. stock futures were unchanged on the day , pointing to a steady open on Wall Street later. Growth in the euro zone's manufacturing sector virtually ground to a halt in July while its dominant service sector grew at its slowest rate in 22 months as demand from abroad fell and the region's debt crisis weighed on minds at home . A separate survey showed activity in China's manufacturing sector shrank for the first time in a year in July, although the figures had little sustained impact after the latest GDP report showed overall growth remained robust. U.S. crude oil fell 0.4 percent to $98.02 a barrel. Bund futures fell 20 ticks while ten-year Italian and Spanish bond yields nudged higher on the day. The euro fell 0.4 percent to $1.4170, erasing earlier gains. "Anything that comes out (from the summit) needs to be really convincing to limit the risk of contagion to Italy and Spain which has materialised in the last few weeks," said Derek Halpenny, currency strategist at Bank of Tokyo-Mitsubishi UFJ. The dollar gained across the board, having earlier come under pressure on concerns about the debt talks in Washington. U.S. lawmakers and the White House are struggling to reach a deficit-reduction deal to raise the government's $14.3 billion debt ceiling and avoid a default . The dollar was up 0.3 percent against a basket of major currencies. There have been glimmers of hope in Washington this week for a compromise based on a broad deficit-cutting proposal from a bipartisan group of senators that could stave off default and salvage America's triple-A credit rating.
