* European markets stable as Greece misses IMF loan payment
* Euro losses minor as markets still assume deal will be done
* Euro zone manufacturing data tepid
By Marc Jones
LONDON, July 1 (Reuters) - European shares and peripheral euro zone bonds rose on Wednesday and the euro held its own as some investors kept faith with expectations that, despite defaulting on an IMF loan, Greece will find a way to stay inside the currency zone.
While an unwelcome milestone for Athens, the default came as no surprise to markets after weeks of debt-talk brinkmanship, and news that the bloc's finance ministers were to hold another teleconference later, show the drama is far from over.
Stocks in London, Paris and Frankfurt as well as Italy, Spain and Portugal opened 0.6 percent to 0.9 percent higher, while the euro hovered just above $1.1110 versus the dollar.
There was plenty of uncertainty though. The failure to reach a deal kept Greece on course for a referendum at the weekend on whether to accept the euro zone/IMF demands for more swingeing spending cuts.
Arguably the biggest focus of the day was whether the European Central Bank would begin cutting the emergency funding it is providing to Greek banks following the missed payment to the IMF.
"It is very difficult to see how one could conclude that banks that are basically closed because they have no access to cash, operating under a government that has just defaulted to the IMF, could possibly be solvent," said Gary Jenkins, chief credit analyst at LNG Capital.
"So it really becomes a political decision as to whether the ECB sticks to its rules or decides to keep everything as it is."
With the feeling that the ECB would not want to deliver the fatal blow to Greece and investors still harbouring hopes of a deal at some stage, Italy, Spain, Portugal and Ireland -- the other high-debt countries that were in the crosshairs of the euro zone crisis a few years ago -- saw their bonds hold firm.
Currency markets were also relatively rangebound.
The U.S. dollar index was up 0.08 percent at 95.568, having bounced from Tuesday's low of 94.847. Against the yen, the dollar stood at 122.57, up from a five-week low of 121.93 plumbed on Tuesday.
CHINA ROLLERCOASTER
There was a flurry of European economic data too.
France's manufacturing sector grew in June for the first time since early 2014 while the equivalent data from Spain and Italy dipped as factory growth remained tepid in the euro zone overall.
Underlining Greece's woes, manufacturing activity there shrank for the 10th month in a row, as export orders and production slumped anew.