Europe stocks dip, euro steady before inflation data

By Nigel Stephenson

LONDON date (Reuters) - European shares dipped and the euro held near 3 1/2-month lows against the dollar on Tuesday ahead of euro zone inflation data that is expected to bolster the case for the European Central Bank to ease monetary policy later this week.

The pan-European FTSE Eurofirst 300 equity index was down 0.12 percent at 0810 GMT, with technology and telecommunications stocks among the worst performers.

Traders were cautions before the 0900 GMT release of euro zone flash inflation data for May and April unemployment numbers. Price rises in the currency bloc are expected to have held steady at 0.7 percent, below the ECB's target of just below 2 percent.

"All other things being equal, there are significant risks for a weaker print. This would further reinforce the call for ECB action this week. (But) the build-up in expectations ahead of the decision has increased the risk of disappointment," wrote Credit Suisse economists in a note on Tuesday.

The ECB meets on Thursday and is widely expected to cut interest rates, including lowering the rate banks are charged for depositing funds with the central bank to below zero.

While recent data pointing to a weaker-than-expected economic recovery have weighed on stocks, the prospect of ECB intervention has offered some support.

However, expectations of lower euro zone rates, and recent upbeat U.S. economic data, have combined to push the euro to its weakest since mid-February.

The single currency was steady at $1.3603, little-changed on the day and not far from a low of $1.3586 hit last week.

The dollar index, which measures the greenback against a basket of currencies, was close to Monday's four-month high.

The dollar stood at 102.35 yen, having earlier hit 102.49, its strongest in more than a month.

German 10-year bond yields were flat at 1.31 percent, not far from 12-month lows hit last week.

U.S. 10-year Treasury yields rose on Monday to 2.54 percent after the Institute of Supply Management showed U.S. manufacturing activity accelerated in May. The ISM data helped push U.S. stocks higher, with the Dow Jones average and S&P 500 index closing a record highs.

EMERGING MARKETS

The U.S. numbers and Chinese data showing the service-sector performance expanded in May at its fastest in six months helped push Asian shares higher on Tuesday.

Japan's Nikkei hit a two-month high, further boosted by talk of public pension funds increasing their assets allocated to domestic shares.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5 percent, nearing a one-year high hit last week.

"On the whole the world's economy is looking up, growing at a moderate pace," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.

Emerging markets stayed broadly rangebound after recent gains as U.S. Treasury yields rose. Emerging dollar bond spreads versus Treasuries stood at 288 basis points, the tightest in 15 months.

Emerging stocks rose 0.4 percent, just off recent 6-1/2 month highs. Indian shares rose as the central bank eased some bank liquidity requirements

Higher U.S. and Asian shares helped steady gold after a five-day losing streak, though the metal was still near a four-month low at $1,246 an ounce.

Brent crude edged up towards $109 a barrel after the U.S. and Chinese data lifted the demand outlook.

(Additiional reporting by Jamie McGeever and Sujata Rao in London, Hideyuki Sano in Tokyo; Editing by Janet Lawrence)