European shares in cautious gains ahead of ECB meeting

Widespread slowdown across Europe fuelled hopes that ECB would respond with stimulus measures

European shares and the euro gained on Wednesday as the acute financial problems in Spain and recent data confirming a widespread economic slowdown across Europe fuelled hopes that the region's central bank would respond with stimulus measures.

Data showing the Australian economy grew a surprisingly strong 1.3% in the first quarter and a report that bank lending in China was growing also supported a move back into riskier assets, with Asian shares up strongly across the board.

The European Central Bank is not expected to cut rates when it meets later on Wednesday but it could indicate a readiness to take some action as early as next month, given the deteriorating economic outlook and Spain's banking troubles.

"The timing of the ECB action is highly uncertain, given the exceptional accommodation already in place and the unique situation for both the future of the euro and stress on financial markets," said Annalisa Piazza, market economist at Newedge.

The single currency was up 0.3% at $1.2490, pulling away from a two-year low of $1.2288 touched last Friday.

Europe's blue-chip company index, the Euro STOXXX50, gained 0.8% to 2104.32 points after rising 0.4% on Tuesday. While MSCI's world equity index extended the gains it has been making all week, rising 0.4% to 293.98.

The European Central Bank is due to announce the outcome of its latest policy meeting at 1245 GMT, with the market consensus calling for it to keep interest rates unchanged at 1%.