World stocks fall on Fed rate hike bets, ECB bond-buying start

By Nigel Stephenson

LONDON (Reuters) - World stocks fell on Monday as investors speculated U.S. interest rates will rise sooner than expected and as a long-awaited 1 trillion-euro European Central Bank bond-buying stimulus programme got under way.

A drop in European shares followed declines in Asia, after forecast-beating U.S. jobs data on Friday stoked expectations the Fed would next month drop a reference to "patience" on the timing of a rate hike, opening the door for a rise in June.

Wall Street stocks, which fell in the wake of Friday's data, looked set for a modestly higher open.

This helped lift the pan-European FTSEurofirst 300 index off the day's lows. It was last down 0.2 percent.

"European stocks have jumped 15 percent since the start of the year and the positive impact from QE has broadly been priced in by now," Saxo Bank trader Pierre Martin said.

Tokyo's Nikkei stocks index closed 1 percent lower. MSCI's main index of Asia-Pacific shares outside Japan fell 1.3 percent.

The dollar was flat against a basket of currencies. It had traded at an 11 1/2-year high in Asia, as Treasury bond yields rose after U.S. jobs data on Friday.

The euro hit its lowest against the U.S. currency since September 2003 at $1.0822 before edging up to $1.0861. The euro has been pressured by the divergent monetary policies of the Fed and the ECB.

"The start of quantitative easing will be one of the key reasons why the euro will remain soft. We think the key driver to the euro's downfall against the dollar will be the further increase in short-term interest rates in the U.S," said Petr Krpata, a currency strategist at ING.

The ECB said it and the euro zone's national central banks had begun buying government bonds under its quantitative easing programme, which is aimed at igniting inflation and growth and will last until at least September 2016.

German 10-year yields, the euro zone benchmark, fell 6 basis points to 0.34 percent, Dutch and French yields by 7 bps and Belgian yields by 8 bps to 0.56 percent.

"It is clear they are in and buying," said Rabobank strategist Lyn Graham-Taylor.

Greek yields, however, rose before a meeting of euro zone finance ministers to discuss reforms proposed by Greece, which is seeking more funds from its international creditors. Eurogroup leader and Dutch Finance Minister Jeroen Dijsselbloem said on Sunday the list was "far from complete".

GOLD, OIL

Brent crude oil fell 35 cents to $59.38 a barrel as the impact of the strong dollar outweighed the threat of output cuts in Libya and Iraq. Gold edged higher to $1,173.30 an ounce, still close to a three-month low.

"More and more investors are coming to the conclusion that the market is awash with oil," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt. "Unprecedented stocks levels cannot be ignored forever."

(Additional reporting by Blaise Robinson in Paris, Anirban Nag, John Geddie and Christopher Johnson in London; Editing by Larry King)