GLOBAL MARKETS-Greek jitters push stock markets off highs

By Sujata Rao

LONDON, Feb 20 (Reuters) - World stocks fell from five-month highs on Friday and the euro weakened before a meeting of euro zone finance ministers that could put Greece on its way to exiting the euro zone.

European equity markets were a touch higher, however , and U.S. stock futures indicated a firmer open on Wall Street , as investors focused on signs of economic improvement across the developed world .

Data on Friday showed robust private-sector growth in France and Germany and an extended run of strong company earnings.

European stocks were just off Thursday's seven-year highs, when it seemed international lenders would approve a Greek proposal for extending its loan agreement. But Germany, the euro zone's main paymaster, rejected the plan.

Friday's meeting is due to start at 1400 GMT in Brussels, and diplomatic efforts are afoot to avert a breakdown that could cause turmoil in world markets.

Germany's European Commission member, Guenther Oettinger, raised hopes for a deal when he said another meeting of euro zone leaders might be needed next week to reach an agreement.

Greece needs financial support to remain solvent beyond late March, but it rejects any bailout extension that would maintain previously agreed austerity measures. Over 1 billion euros fled Greek banks in the past two days on fears of a euro zone exit .

The euro fell for a third consecutive day, losing 0.4 percent to $1.1318 against the dollar, which got a boost from better-than-expected U.S. jobs numbers. Against sterling, the euro hit a seven-year low of 73.40 pence.

"It's really all about Greece," said David Madden, market analyst at the IG (LSE: IGG.L - news) brokerage. "The fact that Germany voiced their objections on the Greek application to extend their loans wasn't entirely shocking, and this back-and-forth will continue right up until the deadline."

Most observers, including Madden, expect a last-minute deal to prevent a disorderly exit by Greece from the euro zone. That is reflected in bond markets across the lower-rated southern European countries.

Even Greek bonds rose across the curve, with 10-year yields down a quarter percent, according to Tradeweb. Spanish and Italian 10-year yields also inched lower .

"The market remains relatively nervous, but clearly the recent (developments) in peripheral debt markets and also in stocks at the moment favours a positive outcome," said Patrick Jacq, a European rates strategist at BNP Paribas (LSE: 0HB5.L - news) .

ECONOMIC CHEER

Anxiety over Greece was countered by signs of economic improvement in the euro zone. Purchasing managers indices (PMI) on Friday showed France's private sector growing at the fastest rate in 3 1/2 years. German PMIs also suggested solid growth in the first quarter.

Japan, meanwhile, has emerged from recession, data this week showed.

All that has boosted world stock markets, with MSCI (NYSE: MSCI - news) 's world equity index on track for its third straight week of gains and Japanese stocks at 15-year highs on Friday. U.S. indexes are also near record highs .

European company earnings paint a relatively cheerful picture, with over half the results beating forecasts. Fourth- quarter earnings are expected to grow 19.5 percent, which would make it the best quarter in 3 1/2 years.

Shares (Frankfurt: DI6.F - news) in French mining group Eramet (LSE: 0MGV.L - news) jumped 9.6 percent after it reported better-than-expected results. Standard Life rose 2.5 percent.

Nav Banwait, chief strategist at Thames Capital Markets, said markets were reckoning on a resolution on the Greek issue and were likely to push higher when that was achieved.

"In the short term, we may be consolidating around these levels, but in the medium term, the markets look strong," Banwait added. (Additional reporting by Alistair Smout and Emelia Sithole-Matharise; Editing by Larry King)