European shares steady as Fed, China fears ease

By Marc Jones

LONDON (Reuters) - World shares and bonds stabilised on Thursday while gold and the euro recovered slightly, after data suggested the U.S. Federal Reserve may leave its stimulus programme in place a bit longer than markets have been thinking.

The market tone improved overnight after a surprisingly sharp downward revision to first-quarter U.S. economic growth, which calmed fears the Fed would soon wind down the huge bond-buying scheme that has underpinned investors' risk appetite.

European shares saw their first session of relative quiet in a week. They consolidated the 3.2 percent recovery they have enjoyed over the last two days after last week's 11 percent dive in response to the Fed's signal on cutting stimulus.

A 0.4 percent rise on London's FTSE 100 outshone broadly flat markets in Paris and Frankfurt, and left Asia's earlier rises as the main driver for the third day of gains for MSCI's world share index.

"Whenever there is good news out of the U.S. it will cause selling because people see it as a confirmation for Fed tapering, while if we have something more disappointing like yesterday people will say, 'Well OK, it won't happen yet'," said Tobias Blattner, an economist at Daiwa Securities.

"That, unfortunately, is the kind of volatility that is going to continue for the next couple of months."

With the rise in benchmark 10-year U.S. government debt appearing to have come to a halt at around 2.4 percent, euro zone bonds from Germany to Greece were able to claw back some of the ground they have lost during the recent global selloff.

Reflecting the rise in yields generally over the last few weeks, Italy paid its highest rate since March at a 5 billion euro auction of 10- and 5- year debt, but healthy demand at the sale meant there was little to unnerve markets.

HAMMERED METALS

After the drama of recent days, there was some respite for precious metals although analysts expected it to be temporary.

Spot gold rose 1 percent to $1,235 an ounce, after a 4 percent fall on Wednesday that took the metal to $1,221.80, its lowest since August 2010. Silver, which sank 5.5 percent in the previous session, gained about 2 percent.

In a note to clients, analysts at ABN Amro lowered their end-of-year forecast for gold $200 to $1,100 and said this year's 25 percent drop in gold and near 40 percent plunge in silver prices showed "investors are losing faith in precious metals".

The easing concerns about a pullback in U.S. stimulus helped oil climb above $102 while in the currency market, mixed euro zone data saw the euro wobble, leaving it at $1.3014, having earlier pulled away from a three-week low against the dollar.

ECB policymakers have been out in force in recent days saying that unlike the Fed, they remain ready to cut rates if needed.

Data from the central bank on Thursday explained some of those concerns. Lending to euro zone firms contracted further in May as the bloc's long-running recession continued to sap appetite for investment and spending.

But at the same time there was a small pick-up in this month's European Commission consumer and business confidence survey, Germany saw unemployment ease while a data revision meant euro zone neighbour Britain did not suffer a recent "double-dip" recession after all.

(Editing by Stephen Nisbet)