Sour Apple results hit tech shares, dollar dips before Fed

By Nigel Stephenson

LONDON (Reuters) - European shares followed Asia's lower on Wednesday, as technology stocks fell after worse-than expected results from Apple and Twitter, while a weaker dollar before a U.S. monetary policy decision kept oil close to 2016 highs.

Apple shares dropped nearly 7 percent in after-hours U.S. trade on Tuesday after company reported a decline in iPhone sales and its first drop in revenue in more than a decade. Twitter lost more than 10 percent after first-quarter revenue lagged expectations.

The pan-European FTSEurofirst 300 index fell 0.3 percent in early trade. Austria's AMS fell 2.4 percent, though Dialog Semiconducter and ARM reversed early declines.

Japan's Nikkei index closed 0.4 percent lower and Taiwan shares fell 0.2 percent as shares of suppliers of parts for iPhones fell.

Banks helped support European shares. Several, including Barclays and Santander, reported lower first-quarter profits. However Barclays shares rose nearly 4 percent and Santander 2.85 percent.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan retreated 0.7 percent.

Australian shares closed down 0.6 percent. Banks fell there after weak inflation data revived prospects for a rate cut as early as next week.

On Tuesday, the S&P 500 index closed up 0.2 percent, but the Apple and Twitter results dragged index futures lower.

The dollar fell 0.3 percent against a basket of currencies as investors waited for a Federal Reserve decision on U.S. rates at 1800 GMT. No change in rates is expected, but the Fed may signal its intention to tighten policy later this year.

Economists polled by Reuters expect two increases this year, although futures prices show traders do not expect rates to rise until late 2016, according to CME Group's FedWatch.

"On a risk/reward basis there is more scope there for a hawkish surprise, because the market's been pricing itself for more dovishness for a very long time," said Rabobank currency strategist Jane Foley.

The euro rose 0.3 percent to $1.1327 while the yen gained 0.1 percent to 111.15 per dollar. The Bank of Japan announces its policy decision on Thursday.

The Australian dollar was the big mover, falling 1.7 percent to $0.7618.

Sterling held close to Tuesday's 12-week high of $1.4640 hit on rising expectations Britons will vote in June to stay in the European Union.

The weaker dollar helped lift oil prices. Brent crude, the international benchmark, rose 61 cents to $46.35 a barrel, within a whisker of Tuesday's 2016 high of $46.49.

Copper fell for a third consecutive day as the benefits of a weaker dollar were outweighed by worries over demand for China. The metal fell 0.9 percent to $4,917, close to Tuesday's one-week low.

Gold edged up about 0.1 percent to $1,245 an ounce.

In euro zone debt markets, German 10-year benchmark yields held steady at 0.29 percent. Spanish equivalents edged up after a final round of talks on forming a Spanish government failed on Tuesday, meaning a new election will be held in June.

"The problem markets have not really digested is that polls point to a similar election outcome to what we saw in December," said DZ Bank strategist Christian Lenk.

(Additional reporting by Shinichi Saoshiro in Tokyo, Jemima Kelly, Dhara Ranasinghe and Sudip Kar-Gupta in London, editing by Larry King)