European stocks fell on Wednesday, failing to extend an overnight rally in Asia as investors looked to Greece's debt crisis and lurch towards possible default as an excuse to cash in gains chalked up earlier in the week.

Europe's EuroFirst 300 index of leading shares was down 0.2 percent .FTEU3, Germany's DAX .GDAXI was down 0.1 percent and Britain's FTSE 100 .FTSE down a half of one percent.

Earnings also weighed on European shares. Richemont (CFR.VX) warned its net profit for the year would drop by 36 percent and (PRTP.PA) Kering posted a bigger-than-expected drop in sales, and both luxury groups were among the worst performers.

Tesco (TSCO.L) was not to blame for the drop, however. Its shares rose as much as 2.5 percent in early trade after a record 6.4 billion pound that the market bet would mark an end to a run of bad news from Britain's largest retailer.

"The stock is up as investors are thinking that the worst is behind them and good news will follow from here now," said Naeem Islam, chief market analyst at Avatrade.

"The positive momentum from Asian markets filtered into European markets at first. But traders are still taking a very cautious approach now."

In Asia, China's leading index rose 2.4 percent to a seven-year high .SSEC and Japan's Nikkei .N225 closed above the 20,000 point level for the first time in 15 years.

Asian stocks continued to draw support from Chinese measures to spur lending and combat a slowing economy. On Sunday, China's central bank cut the reserve requirement ratio for the country's lenders for the second time in two months.

The Shanghai Composite Index was also spurred by comments from state media which declared the bull market "has just begun."

GREEK WOES

The Greek government's looming cash crunch weighed on local markets as Greek stocks hit a three-year low and the two-year bond yield hovered around 30 percent. All other peripheral and core euro zone bond yields were lower, however.

European finance ministers meet to discuss Greece this week for what had been billed as a crunch meeting. The deadline will be pushed back, however, and the market remained cautious after Greek finance minister Yanis Varoufakis cited signs of convergence on Tuesday.

European Central Bank board member Benoit Coeure said the ECB will continue to fund Greek banks as long as they were solvent and dismissed the growing talk that Greece might ditch the euro.

Germany's benchmark 10-year yield slipped one basis point to 9 basis points DE10YT=TWEB, while the 10-year U.S. yield fell back two basis points to 1.89 percent US10YT=RR.

Spanish, French and Italian yields fell, with investor cash to be ploughed back into these countries' bonds between now and the end of the month reaching as much as 65 billion euros, according to Citi analysts' estimates.

The euro inched up to $1.0750 EUR=.

"At the margin, the commentary from the EU/Greek talks was hopeful, though not hopeful of any resolution this week," said SocGen's currency analysts, noting that as long as $1.0850 resistance held the trend could still be lower.

The Australian dollar was the biggest currency mover. It gained almost 1 percent to $0.7788 after core inflation rose 0.6 percent in the first quarter, higher than a forecast of 0.5 percent, and possibly taking a rate cut next month off the table.

In commodities, crude oil extended losses as Middle East tensions eased after Saudi Arabia announced an end to air strikes against Iran-allied Houthi rebels in Yemen, though residents reported a further strike on Thursday.

Brent crude was down 0.75 percent at $61.62 a barrel LCOc1 after tumbling more than 2 percent overnight, and U.S. crude futures were down 1.2 percent at $55.94 a barrel CLc1.