* European shares head for biggest rise in over a month
* Dollar nudges higher amid talk of Fed rate hike
* Aussie dollar tumbles on rate cut talk
* Euro zone meets on latest Greek aid deal
* Wall Street set for modest rise as dollar gains
By Marc Jones
LONDON, May 24 (Reuters) - European shares were heading for their best day in over a month on Tuesday as the waiting game to see whether the U.S. raises interest rates again next month sent the euro to its lowest since March.
Asian shares had stumbled to near 2-1/2-month lows overnight but Europe jumped as the weaker euro, hopes for a swift Greek aid deal in Brussels later and confirmation Germany’s economy had a solid start to the year lifted spirits.
Britain’s FTSE 100, Germany’s DAX and France’s CAC had climbed 0.8 to 1.5 percent ahead of U.S. trading where Wall Street’s main markets were expected to start 0.3-0.4 percent higher too.
Even Russia managed to fend off wobbling commodity prices to carve out gains.
The U.S. dollar pushed the euro down to $1.1165 as it touched its highest against the world’s other top currencies since late March. It was the Australian dollar that really caught the eye, however, as speculation about more rate cuts there triggered its heftiest fall in 4-1/2 years.
New Zealand’s dollar, which tends to follow the Aussie’s movements, also fell 0.7 percent to a two-month low of $0.6706 , while oil exporter Canada’s dollar hit a seven-week low, underscoring ongoing market uncertainty.
“Everyone is worried about a June hike from the Fed,” said Allianz Global Investors’ emerging markets portfolio manager Shahzad Hasan.
“I think what is more important is the language if they do hike. Do they continue or do they stop after June, and what is the trajectory for the Fed funds rate in 2017.”
U.S. Treasury yields inched higher again. European 2-year yields ticked up too, but there was a drift down in longer 10-year benchmarks as Greece’s borrowing costs hovered at their lowest in six months.
Hopes were building that euro zone finance ministers may be able to agree a new aid plan for Athens later without the last-minute panics that have typified previous discussions.
Greek lawmakers on Sunday approved tax increases and a new privatisation fund to pave the way for a deal, leaving the onus on the rest of the bloc as the International Monetary Fund reiterated its demands for full-blooded debt relief.
“Providing an up-front, unconditional component to debt relief is critical to provide a strong and credible signal to markets,” a report from the Fund’s staff said.
Wall Street’s expected bounce was after a lower close on Monday when the jitters about the Fed overshadowed a rebound in Apple shares.
Investors will be keeping an eye on economic data. New home sales due at 10 a.m. ET (1400 GMT) are expected to have increased 2 percent to a seasonally adjusted annual rate of 523,000 units in April. Manufacturing and services data are also due to be released.
Overnight in Asia, Chinese and Japanese stocks lost 0.7 percent apiece, though some investors were wary of chasing markets lower after their recent retreat.
Yang Hai, an analyst at Kaiyuan Securities, said trading was likely to remain dull for a while amid economic sluggishness.
“The current economic environment doesn’t justify a sustainable rebound. In addition, regulators are reducing leverage in the asset management industry so money is not flowing in.”
Oil prices clawed up to $48.52 a barrel and 48.36 for U.S. crude WTI, having earlier been on course for fifth day in the red. It was thin trade though and the dollar’s strength and talk of Iran upping production kept the pressure on.
The strong dollar also took its toll on gold, which dipped to a 3-1/2 week low, and copper, which neared a three-month low.
Philadelphia Fed President Patrick Harker said on Monday a rate hike in June would be appropriate unless data weakens, while St. Louis Fed President James Bullard said holding rates too low for too long could cause financial instability.
Fed Chair Janet Yellen will appear at a panel at Harvard University on Friday, a day on which investors will also see the second estimate of U.S. first-quarter growth.
“We are seeing more dollar strength and a lot of it against the smaller currencies,” said Saxo Bank FX strategist John Hardy. “The Chinese authorities are keeping the yuan exchange rate quiet, too, which is giving the Fed the room to wax lyrical and be as hawkish as they are being.”
Editing by Robin Pomeroy