By Marius Zaharia
LONDON, July 15 (Reuters) - Yields on peripheral bonds dipped, while European stocks and the euro held their breath on Wednesday as fractious parties in the Greek parliament prepared to vote on EU-prescribed austerity measures needed to unlock a third bailout.
Lawmakers from Prime Minister Alexis Tsipras' Syriza party and their allies argued behind closed doors about whether to back the reforms. Tsipras defended the deal, saying it was better than the alternative of being forced out of the euro zone. ID:nL5N0ZU0MC
The parliamentary vote is seen as the key hurdle to a final agreement for the bailout, which could end -- at least temporarily -- months of increased uncertainty, volatility and frequent risk aversion in financial markets.
The pan-European FTSEurofirst 300 index .FTEU3 fell 0.1 percent to 1,578.71, having risen for five days in a row until Wednesday. Yields on German Bunds DE10YT=TWEB , top-rated assets often sought in times of uncertainty, dipped 2 basis points to 0.82 percent. The euro EUR= , which has lost 1.5 percent this week, was little changed at $1.1001.
But 10-year yields on Spanish ES10YT=TWEB , Italian IT10YT=TWEB and Portuguese PT10YT=TWEB bonds, seen as vulnerable to spillovers from the Greek crisis, fell 2-3 basis points to 2.06 percent, 2.08 percent and 2.75 percent respectively.
"There's much uncertainty surrounding Greece," said Rabobank rate strategist Richard McGuire.
"The probability does favour a passage of the necessary legislation on the austerity measures given the opposition support for Tsipras but going forward there are questions about their ability to pass legislation on reforms."
An International Monetary Fund study published on Tuesday showed that Greece needs far more debt relief than European governments have been willing to contemplate so far. ID:nL5N0ZU0MC
CHINA GROWTH
China's second quarter gross domestic product grew an annual 7.0 percent, steady with the previous quarter and slightly better than analyst forecasts. Fixed-asset investment and industrial output growth also beat economists' forecasts. ID:nB9N0ZK00L
But Shanghai's benchmark composite index .SSEC fell 3 percent, and the CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen dropped 3.5 percent.
Further stimulus is still expected after the quarter ended with a savage correction that shaved about 30 percent off share market value since last month, before Beijing's support steps stemmed the freefall for a while.
"Stock investors at present care more about what the government policy towards the market is, whereas the connection between the economy and the market has somehow loosened," said Zhang Qi, senior stock analyst at Haitong Securities in Shanghai.
Oil prices dipped as the market prepared for a gradual increase in supply after Iran signed a nuclear deal with six world powers under which sanctions imposed by the United States, the European Union and the United Nations are to be lifted in exchange for curbs on Tehran's nuclear programme. O/R
Brent crude LCOc1 was down 18 cents from its previous settlement, trading at $58.33 a barrel. U.S. futures CLc1 were down 9 cents at $52.96.
The dollar .DXY was slightly higher against a basket of currencies at 96.68.
A Congressional testimony by Federal Reserve Chair Janet Yellen later in the day will be closely watched for any hints regarding the timing of a U.S. interest rate hike, particularly after a surprise fall in U.S. retail sales on Tuesday.