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NEW YORK, N.Y. - U.S. stocks gained on Tuesday afternoon, rebounding from big losses a day earlier, as investors followed the latest negotiations between the Greek government and its creditors. Greece's international bailout program was set to expire later in the day.

The Standard & Poor's 500 index rose 12 points, or 0.6 per cent, to 2,069 as of 2:41 p.m. Eastern time. The Dow Jones industrial average climbed 73 points, or 0.4 per cent, to 17,667. The Nasdaq composite rose 35 points, or 0.7 per cent, 4,994.

Stocks were recovering a day after the market had its worst day of the year following a breakdown in talks between Greece and its creditors, which pushed the Mediterranean nation closer to defaulting on its debt. Investors are concerned about the fallout in financial markets if Greece defaults and leaves the euro currency.

On Tuesday, the office of the Greek Prime Minister said that Greece remains at the negotiating table, and that the government has proposed a two-year deal with Europe's bailout fund. Eurozone finance ministers had a teleconference on Tuesday to discuss the last-minute deal proposal by Greece. They plan to hold another call on Wednesday.

A day earlier, Greece's government said the country will not make its payment due Tuesday to the International Monetary Fund. European Union officials say Greece would lose access to more than 16 billion euros ($18 billion) in financial support once its bailout program expires at midnight.

Despite Monday's slump, the Standard & Poor's 500 index remains just 3 per cent below its record close of 2,130.82 set May 21, and many investors remain confident the U.S. economy will sustain its economic recovery.

"Whatever happens here, even if it's the worst case scenario and Greece drops out (of the euro), the pullback probably wouldn't be gigantic and would not affect the United States," said Scott Wren, a senior global equity strategist at the Wells Fargo Investment Institute.

Greece will likely remain the focus of attention in markets this week, especially if no deal is reached, said Mike Ryan, chief investment strategist at UBS Wealth Management Americas.

The Greek government called a referendum for Sunday asking Greeks to vote on whether the nation should accept the deal offered by its creditors. If Greeks vote against the proposal, the country could slide into bankruptcy and be forced to leave Europe's common currency.

Even though the turmoil in Greece is a long way removed from the U.S., the global nature of financial markets will ensure that any ripple effects will be felt in the U.S.

"There are obvious concerns that failure to reach some kind of an agreement could put Greece on a path to a eurozone exit," said Ryan. "It's an increasing risk."

The Stoxx 50 index of leading European shares fell 1.3 per cent. Germany's DAX dropped 1.2 per cent, while the CAC-40 in France fell 1.6 per cent.

In the U.S., Willis Group Holdings rose $2.01, or 4.4 per cent, to $47.41 after the insurance broker said it will tie up with Towers Watson in an all-stock deal valued at about $18 billion.

The combined company will be called Willis Towers Watson and will be based in Ireland, where Willis has its headquarters.

Bond insurance companies, including MBIA and Ambac, plunged for a second day as investors followed the debt crisis in Puerto Rico. Standard & Poor's, a debt-rating company, said that a default, or a restructuring, of the island's debt within the next six months appeared inevitable.

Puerto Rico's governor said Monday night he will form a financial team to negotiate with bondholders on delaying debt payments and then restructuring $72 billion in public debt that he says the U.S. island can't repay.

"If Greece wasn't happening, this would be a major story right now," said JJ Kinanhan, chief strategist at TD Ameritrade. "This is certainly a story that is going under the radar."

MBIA dropped 26 cents, or 4 per cent, to $6.11. The company's stock has fallen 35 per cent in the last week. Ambac Financial fell $2.44, or 12 per cent, to $17.27.

Andrew Gadlin, an analyst who follows MBIA for broker Odeon, estimates that the insurer has $5.8 billion of exposure to Puerto Rico's debt. Mark Palmer, an analyst at BTIG, wrote in a note Monday that the stock of bond insurers was "unbuyable" until there was greater clarity on the losses the firms could face.

Investors were also looking forward to the government's monthly jobs report, which will be published on Thursday. A strong report is likely to increase investors' expectations that the Federal Reserve will raise its benchmark interest rate for the first time in close to a decade later this year.

In currency trading, the euro was down 0.3 per cent at $1.1186 while the dollar fell 0.3 per cent to 122.24 yen.

Government bond prices rose slightly after big gains on Monday. The yield on the 10-year Treasury note edged down to 2.32 per cent from 2.33 per cent a day earlier.

In energy markets, benchmark U.S. crude rose $1.14 to close at $59.47 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oils, gained $1.58 to $63.59 a barrel in London.

Metals futures ended slightly lower. Gold fell $7.20 to $1,171.80 an ounce, silver lost 11 cents to settle at $15.55 an ounce and copper fell two cents to $2.62 a pound.