euroDespite showing gains in early trade on Friday, European stocks began falling before a meeting between Greek PM Lucas Papademos and the head of the Institute of International Finance Charles Dallara, scheduled for 16:30 GMT. The officials will continue negotiations on the debt swap, with the objective to finalize the deal with private creditors as soon as possible.

According to comments made by Deutsche Bank CEO Josef Ackermann private Greek bondholders might be willing to accept a 70% haircut.

EU Monetary Affairs Commissioner Olli Rehn said on Friday that an agreement should be reached withing the next three days: “We are just about to close a deal on the private sector involvement between the Greek government and the private creditor community, if not today maybe over the weekend, but in any case preferably still in January rather than in February.” He also added that the outcome of the talks will be crucial for the nearest future of the Eurozone.

Kathy Lien, Director of Currency Research for GFT considers Rehn's remarks a positive sign: “Talk of a potential agreement is not new but the difference is that this time we are hearing it from the mouth of the EU's Commissioner for Monetary Affairs rather than an unnamed European official.”

Nevertheless in the afternoon session Eurostoxx 50 fell 0.94% while CAC 40 decreased 1.09%. The German DAX dropped 0.52% and FTSE declined 1.00%. The Euro fell to the area of 1.3090/95.

Italian borrowing costs drop at bond auction

On Friday morning Italy held a debt auction during which the country's Treasury sold 11 billion euros worth of 6- and 11-month bonds at yields of 1.96% (in comparison with 3.25% at the December 28 auction) and 2.21% respectively.