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Greece is still expected to default at some point and for most investors who have dumped bonds over the past two years and who are crucial to put the ailing economy back on its feet, the longer that is delayed, the longer it will be before they consider looking at Greek assets again.

A likely second bailout -- currently under tortuous negotiation -- is seen only as a means to buy time for euro zone banks to provision for eventual losses and protect the bloc's larger economies from contamination, while the reforms attached to the package will be hard to implement in the face of deepening public resentment.

"We would buy if the economy manages to reform itself and if the banking sector is self-funded, but I don't think that's going to happen on a five-year view," said Russell Silberston, head of global interest rates at Investec Asset Management, who manages $31 billion worth of fixed income assets globally.

"Our view is they also need to default before that."

Greek Finance Minister Evangelos Venizelos told Reuters on Monday he intended to return to market funding in the middle of 2014.

Most investors don't think that will happen without a major restructuring to make Greece's debt mountain sustainable and remove it from the downward spiral of constant deficit-cutting which will wreck any chance of economic recovery.

"For Greece, starting over is the only solution," said Kommer van Trigt, a bond fund manager with Robeco Group, managing about 40 billion euros ($57 billion)

Silberston said the "first default" was near as France's proposal for a voluntary rollover of Greek debt seemed to be gathering momentum. But that would not solve Greece's solvency problem.

With debt expected to reach 1.6 times its 2011 economic output, economists say Greece would need a primary budget surplus of about 5 percent of gross domestic product, compared with last year's 5 percent primary deficit, simply to stabilize its debt at current levels.

On the assumption that Greece's debt-to-GDP ratio would peak at 166 percent, Evolution Securities calculations show a haircut of about 64 percent would be needed to bring the ratio back to the ceiling of 60 percent agreed in the EU'S Maastricht Treaty.

The Greek debt curve fully prices in a 50 percent haircut on average, according to UniCredit. But imposing losses on bondholders before gaining credibility may be in vain.

Investec's Silberston said besides a haircut, he would want to see several quarters of primary budget surpluses achieved in a sustainable way -- and not through privatization revenues -- before buying Greek debt.

"The big problem with a major haircut is that ... you would still need to have a very high premium for people to buy Greek debt after that date because if you look historically at haircuts, they tend not to be in isolation," said Jack Kelly, an investment director on global government bonds at Standard Life Investments, which manages assets worth 157 billion pounds ($250 billion).

CHEAP IS NOT ENOUGH

After an immediate Greek default was avoided with 12 billion euros of emergency loans and a fresh round of belt-tightening measures agreed in Athens, yields on some of its debt have fallen by more than 200 basis points.

But at over 27 percent for two-year paper and 16 percent for the 10-year they are still punishingly high. Only short-term investors were behind the rally, which was also exacerbated by thin volumes.

Kelly said Standard Life, which sold its last holdings of Greek debt in June 2010, would only buy it back if it reached investment grade again or as part of a EU common bond, something Germany has ruled out.

Although rated above junk, Portugal and Ireland, the other bailed out countries in the euro zone, are also considered a no-go by long-term debt investors because of the risk they will be dragged down with the Greek crisis.

But those countries have a chance to turn things around faster than Greece. The best placed is Ireland, whose exports are more competitive and its labor markets more flexible.

"The numbers are a bit better for Portugal and Ireland," said van Trigt at Robeco Group. "At this point we are not really differentiating between Greece, Ireland and Portugal. Going forward, a country like Ireland has a better starting position."

THE RIGHT PRICE

With the timing and magnitude of any Greek debt haircut hard to predict because politics plays a greater role than mathematics, it is hard to assess what price would draw investors back into Greece.

A common comparison is Uruguay's debt restructuring in 2003, when the price for its 2012 bond rose from about 40 to 60 cents in the dollar immediately after the event.

Greece's June 2020 bond trades at 55 cents in the euro.

"At prices of under 50, there will be value in eight- or nine-year (Greek) bonds at some stage," said Ciaran O'Hagan, strategist at Societe Generale. "But only when accounts are rendered sustainable, e.g. through restructuring."

That only holds good if Greece avoids a unilateral and disorderly default like Argentina's in 2002. It organized large debt swaps in 2005 and 2010 yet is still shut out of debt markets.

Market pricing before any haircut could offer opportunities to buy on the view that Greek bondholders were too pessimistic about the extent of such a move. But it would not help Greece, as those investors may bail out soon afterwards and their spending would be small.

"Those would only be incredibly hot money," said Robert Talbut, chief investment officer at Royal London Asset Management, which runs assets worth 40 billion pounds ($64 billion). He added he would not take that risk. ($1 = 0.626 British Pounds) ($1 = 0.705 Euros)

(Editing by Ruth Pitchford/Mike Peacock)

New orders received by U.S. factories bounced back in May, boosted by demand for transportation equipment, a government report showed. The 0.8 percent rise was slightly below economists' forecast.

Equities had rallied for five straight days for a 5.6 percent gain on the S&P, rebounding from weakness over the past two months. Moves to avert a debt crisis in Europe and surprisingly strong regional business data helped lift some of the gloom on Wall Street.

"Factory orders -- I didn't get much reaction or pull from that," said Fred Dickson, chief market strategist at D.A. Davidson & Co. Lake Oswego, Oregon. "We've had a big rally; it's time for consolidation."

Volume is expected to remain low in the holiday-shortened week, which could increase volatility. Markets were closed on Monday for the Independence Day holiday.

The Dow Jones industrial average .DJI dropped 23.42 points, or 0.19 percent, to 12,559.35. The Standard & Poor's 500 Index .SPX declined 4.23 points, or 0.32 percent, to 1,335.44. The Nasdaq Composite Index .IXIC fell 5.24 points, or 0.19 percent, to 2,810.79.

Southern Union Co advanced 3 percent to $41.59 after pipeline operator Energy Transfer Equity LP (ETE.N) raised its bid to buy its rival by 21 percent to about $5 billion, trumping the $4.9 billion bid offer from Williams Companies Inc (WMB.N).

Immucor Inc (BLUD.O) surged 30.2 percent to $26.98 after the diagnostics firm said it agreed to be acquired by private equity group TPG Capital for a fully diluted equity value of $1.97 billion.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

The Commerce Department said on Tuesday orders for manufactured goods rose 0.8 percent after a 0.9 percent fall in April. Economists had forecast factory orders rebounding 1.0 percent in May.

Manufacturing is leading the economic recovery, with data on Friday showing a pick-up in the sector as the Institute for Supply Management's manufacturing index rose to 55.3 in June from 53.5 in May.

Details of the May factory orders report suggested an easing in supply chain disruptions after the March earthquake in Japan that had hampered factory activity.

The Commerce Department report showed orders excluding transportation edged up 0.2 percent in May after a similar gain the prior month.

Unfilled orders at U.S. factories rose 0.9 percent in May, the biggest increase since September, after a 0.6 percent gain in April. Shipments edged up 0.1 percent after falling 0.4 percent in April.

Inventories at U.S. factories increased 0.8 percent in May to $593.0 billion, the highest level since the series started in 1992.

The department revised durable goods orders for May to show a bigger 2.1 percent rise rather than the previously reported 1.9 percent increase. Excluding transportation, orders for durable goods were up 0.7 percent in May instead of 0.6 percent.

The increase in orders for non-defense capital goods excluding aircraft, seen as a measure of business confidence, was unrevised at 1.6 percent.

(Reporting by Lucia Mutikani, Editing by Chizu Nomiyama)

Expectations for a moderate slowdown in Asia that will bring inflation rates down has been attracting capital inflows and increasing bets on a second-half recovery in stocks. Some markets though, particularly Japan, may be ripe for some profit taking after recent gains.

Risky assets have been slapped around in the first half of the year by concerns ranging from worries about escalating inflation in Asia, Japan's nuclear scare to surging commodity prices and the impact of the end of U.S. quantitative easing.

On Tuesday though, stock markets in Australia and Japan were largely flat. Investors were on watch for an Australian central bank rate decision where it is almost certain to hold rates at 4.75 percent, but an accompanying statement might offer hints that it may be backing away from a tightening bias.

The MSCI index of Asia-Pacific shares outside Japan was broadly flat, holding near the highest since June 2. The index has been in a rising trend for the past two weeks.

British and European shares ended higher on Monday even as Wall Street remained shut for a holiday.

In currency markets, the Australian dollar was under some pressure early in the session after local media in China speculated on a possible interest rate increase in China. It was down 0.3 percent to US$1.0710.

The euro hovered near a one-month high against the U.S. dollar before a much expected interest rate increase on Thursday where a hawkish European Central Bank might attract more buyers to the beleaguered currency.

In a sign that the euro's near term outlook has stabilized, it held above a key support line of $1.45 in early Asian trade, despite a warning from ratings agency Standard & Poor's on Monday that it would treat plans for a rollover of privately-held Greek debt being discussed as a selective default.

It was trading at $1.4526 and has managed to retain almost all of last week's 2.5 percent gain -- its best weekly performance since January.

With Greek default fears being relegated to the backburner for now, BNP Paribas strategists expect more real money investors and leveraged accounts to start buying euros if it becomes clear that any dips won't stay much below the $1.45 line.

Bond markets are fairly quiet with yields on ten-year U.S. Treasury notes holding above 3.18 percent, a rise of more than more than 30 basis points since last Monday.

U.S. crude futures stayed above the $95 per barrel line ahead of U.S. factory orders data later in the day.

(Additional reporting by Ian Chua in SYDNEY, Editing by Kevin Plumberg)