GLOBAL MARKETS-Stocks fall, bonds up as Greece veers toward default

(Updates to U.S. market open, adds comment, changes dateline from previous LONDON)

* Euro pares losses, Swiss intervene to halt franc rise

* PBOC easing fails to stop China share rout

By Rodrigo Campos

NEW YORK, June 29 (Reuters) - U.S. stocks added to a global selloff on Monday as markets digested news of capital controls in Greece and the country veered toward a default on its debt, while the euro recouped some of its earlier losses against the dollar.

Talks between Athens and its creditors broke down over the weekend after Prime Minister Alexis Tsipras called a surprise referendum on the austerity cuts in the aid package proposed by Greece's creditors. Tsipras late Sunday announced moves to prevent a collapse of the banking system.

After an initial wave of selling, European stocks and the euro recovered some ground as investors judged that the Greek crisis still had some way to run. On Wall Street, benchmark S&P 500 futures fell as much as 2 percent late on Sunday, but the index fell less than 1 percent in early Monday trading.

The CBOE Volatility index, a measure of the premium traders are willing to pay for protection against a drop in the S&P 500, jumped as much as 19.1 percent to 16.7 points, the highest in three months. It was last up 13.7 percent at 15.94, not far from its historic average.

The session's market moves in Europe were considerable, but paled in comparison to the market impact of the financial crisis of 2008 or the last major round of Greek-spurred turmoil in 2011-12.

"This weekend's developments increase the likelihood of a (Greek) default, although there is still a significant chance that the pressure applied by the Europeans will lead to a surprise positive resolution to the drama," said Brian Reynolds, chief market strategist at New Albion Partners in New York.

The Dow Jones industrial average fell 109.23 points, or 0.61 percent, to 17,837.45, the S&P 500 lost 12.17 points, or 0.58 percent, to 2,089.32 and the Nasdaq Composite dropped 35.47 points, or 0.7 percent, to 5,045.04.

The pan-European FTSEurofirst 300 .FTEU3 index shed 1.7 percent, the most in a month. It earlier fell as much as 3.2 percent.

'WORRISOME' CHINA DROP

Greek banks and the stock market were closed on Monday and were expected to remain closed until after the July 5 referendum.

The Global X FTSE Greece exchange-traded fund (ETF) , which tracks the Athens stock market, was down 15.9 percent from its Friday closing price. Euro zone banks fell 4.3 percent in value.

Greece's bailout program expires on Tuesday.

Adding to the gloomy backdrop, China shares dived another 3.3 percent, bringing the losses in the past two weeks to more than 20 percent, with central bank cuts in interest and reserve rates on Saturday failing to calm jittery investors.

"The way the creditors are dealing with Greece made sense; it sends a message to radical parties in the periphery that reneging on promises brings pain," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

"I think the China decline is more worrisome," he said. "I'm not that worried as it mainly looks like froth coming out of the A shares market (but) if it spills into Hong Kong, that could be a tipping point."

The Shanghai Composite fell 3.3 percent and Hong Kong's Hang Seng fell 2.6 percent.

BUY THE DIP?

Until late last week, investors were hopeful that an 11th hour deal would prevent a Greek default and that the impact on other markets from a possible default would be minimal.

"The European financial system now has much less exposure to Greece than in 2011 and 2012," said Stephanie Flanders, Chief Market Strategist for Europe at JPMorgan Asset Management.

The euro fell overnight to as low as $1.0953, off 2 percent versus the U.S. currency, but recouped much of those losses to trade down just 0.4 percent at $1.1118.

"Maybe the market doesn't believe that a Greek exit could create the type of contagion that it would have done a few years ago," said Rabobank senior currency strategist Jane Foley.

"But if there is a no vote at the weekend, that theory will be tested."

The planned vote in Greece would decide whether to accept stronger austerity measures demanded by the creditors.

The euro received support as the Swiss National Bank confirmed it had intervened to counter gains for the franc against the bloc's single currency.

The yen strengthened 0.8 percent versus the greenback, giving up some of the gains that were as much as 1.4 percent.

TREASURIES, COMMODITIES

Benchmark U.S. Treasury yields fell to one-week lows on Monday, with some traders flocking to U.S. debt as a risk-off move on worries about the impact of a Greek default on global financial markets.

The 10-year Treasury note rose 26/32 in price to yield 2.3819 percent, after earlier hitting 2.292 percent, the lowest in a week.

"The coast is not clear ahead of quarter-end," said George Goncalves, head of U.S. interest rates strategy at Nomura Securities International in New York. "There is still a belief there's a solution (for Greece) even though I think it's misplaced."

Government borrowing costs in Europe's indebted southern countries shot up on worry about a possible contagion from the Greek developments.

However borrowing costs in Italy, Spain and Portugal were still less than half the levels seen in late 2011 and early 2012 at the height of the most recent debt crisis.

Spot gold pared a gain of more than 1 percent on the day to trade mostly unchanged near $1,175 an ounce.

Brent crude was down 1.8 percent at $62.15 a barrel and U.S. crude fell 1.7 percent $58.64 a barrel after having hit $58.04, a three-week low.

(Additional reporting by Richard Leong in New York, John Geddie, Anirban Nag, Jemima Kelly and Sudip Kar-Gupta in London, Nicola Saminather in Singapore and Hideyuki Sano in Tokyo; Editing by Bernadette Baum)