Euro stocks get data lift as dollar rebounds

By Michael Connor

NEW YORK (Reuters) - European stocks rose to near-record highs on Tuesday on signs the euro zone economy was gaining momentum, while the dollar recovered from recent losses and oil fell.

U.S. stocks traded tightly amid worries about the dollar's gains before turning lower.

Europe's FTSEurofirst 300 index of top shares closed up 0.26 percent at 1,604.36, near a recent 7-1/2-year high, after a stronger-than-expected survey showed euro zone manufacturing at a four-year high.

Subsequent strong data in the United States, however, shifted sentiment in favor of the greenback, which may drag on U.S. corporate profits.

The Dow Jones industrial average was down 63.12 points, or 0.35 percent, at 18,052.92. The Standard & Poor's 500 Index was down 6.95 points, or 0.33 percent, at 2,097.47. The Nasdaq Composite Index was down 4.70 points, or 0.09 percent, at 5,006.28.

The euro topped $1.10 early in the global session but was last down 0.30 percent at 1.092. The dollar has been on a roll in the last 12 months, rising more than 20 percent against a basket of major currencies on expectation of higher U.S. interest rates.

"Any positive surprises from the euro area are further adding to this euro/dollar rally; however we think this is temporary," said Nikolaos Sgouropoulos, foreign exchange strategist at Barclays in London. "We still believe in the dollar strength trend going into the second half of the year."

The greenback's gains have been tempered somewhat after the Federal Reserve last week cut its forecasts for U.S. inflation and growth, making investors reconsider when the Fed might start raising rates.

The dollar index was last up 0.1 percent at 97.135, below its 12-year peak of 100.390 struck on March 13.

San Francisco Fed President John Williams said on Tuesday the strong dollar would drag on growth this year, though the U.S. economy was strong enough to handle it.

Bond yields fell with inflation remaining low. Reports showed core U.S. consumer inflation running at a 1.7 percent year-over-year rate and U.K. inflation was unchanged on an annual basis.

Benchmark 10-year U.S. Treasury notes were last up 10/32 in price, the yield falling to 1.88 percent.

The China flash HSBC/Markit Purchasing Managers Index dipped to 49.2 in March, below the 50 level separating expansion from contraction. Economists polled by Reuters had forecast a reading of 50.6, slightly weaker than February's 50.7.

The Chinese data weighed on oil prices. Brent crude fell under $55 a barrel and was last off 0.4 percent at $55.69, as Saudi Arabia said its production was close to an all-time high. [O/R]

Japan's Nikkei stock average <.N225> slipped 0.2 percent, pulling away from the previous session's 15-year highs. A manufacturing survey added to concerns that Japan's slowly recovering economy may be losing momentum, with activity expanding at a much slower clip as domestic orders contracted.

(Additional reporting by Jemima Kelly, Ahmed Aboulenein, Patrick Graham and John Geddie in London, Blaise Robinson in Paris and Lisa Twaronite in Tokyo; Editing by Mark Trevelyan, James Dalgleish and Dan Grebler)