The euro rose on Tuesday on speculation that European Union nations could bail out errant member Greece, while global stocks were flat and emerging market shares climbed.

Expectations about a rescue for Greece followed news that European Central Bank President Jean-Claude Trichet was leaving a meeting of central bankers in Sydney early to attend a European Union leaders' summit.

EU leaders will hold a special summit on the economy on Thursday in Brussels amid increasing worries that Greece and other so-called peripheral euro zone economies cannot handle their debts and deficits.

Spreads between German 10-year bonds and Portuguese and Spanish equivalents tightened. The spread with Greek debt was steady, but wide at 365 basis points.

Concerns about the euro zone's sovereign debt troubles have battered financial markets this year, even pressuring U.S. banks on Wall Street on Monday.

The euro was up half a percent at $1.3716 and three-quarters of a percent at 122.83 yen.

We are seeing a squeeze of some short euro positions which were established at low levels as market speculation of a Greek bailout is seen as positive in the near-term, said Antje Praefcke, currency strategist at Commerzbank in Frankfurt.

The euro is down more than 4 percent against the dollar this year and more than 7.5 percent against the yen, in part because of concerns over debt.

The dollar was off a quarter of a percent against a basket of major currencies <.DXY>.

MIXED STOCKS

World stocks as measured by MSCI <.MIWD00000PUS> were flat, lifted by gains of 0.8 percent in their emerging market component. Chinese and Hong Kong shares were generally higher, cheered by higher commodity prices.

In Europe, the FTSEurofirst 300 <.FTEU3> was down 0.2 percent, taking year-to-date losses to around 9 percent.

The market has been hammered by a number of worries following last year's large gains.

Investors are rightly concerned about the timing of the removal of extraordinary loose fiscal and monetary policy. The risk of default has increased and there is an uncertainty over financial regulation, said Henk Potts, equity strategist at Barclays Wealth.

Earlier, Japan's Nikkei <.N225> edged down 0.2 percent to a two-month closing low.

Toyota Motor Corp <7203.T>, whose shares have lost about a fifth of their value since late January, rose on short-covering with investors welcoming signs it was taking steps to deal with its safety problems.

The automaker announced a recall of the Prius and other hybrid cars for braking problems.

(Additional reporting by Atul Prakash and Neal Armstrong, editing by Mike Peacock)

Commerzbank European union