Stocks retreat on Greenspan warning, oil hits $71

LONDON (Reuters) - Global stocks dipped from record highs on Thursday after former U.S. Federal Reserve chairman Alan Greenspan said he expects a "dramatic contraction" in booming Chinese shares, while oil jumped to a nine-month peak.

The euro sank to a session low against the dollar and the yen after data showed German business confidence failed to rise in May as economists had expected.

The Ifo business climate index was unchanged at 108.6, below forecasts of a rise to 108.8. "The figures are somewhat worse than expected. But the business climate remains at a very high level," said Juergen Michels, an economist at Citigroup. "Germany is on a path of dynamic growth."

The data had little impact on stocks. Europe's FTSEurofirst 300 .FTEU3 backed away from a six-and-a-half year peak the previous session, and was down 0.6 percent at 1,600 points by 0845 GMT as weakness in other regions weighed.

Asian share markets were mostly lower after Greenspan told a teleconference in Madrid that the recent boom in Chinese stocks was "clearly unsustainable".

The remarks by the former Fed chief -- who warned investors against "irrational exuberance" more than three years before the dotcom bubble finally burst -- added to fears a sharp correction in Chinese shares could spill over into other markets.

"I think (Greenspan's) absolutely right ... People are concerned about what's happened in China, and that the market has gone ballistic, and no doubt there will be a correction of some sort," said Brewin Dolphin chief strategist Mike Lenhoff.

"But the corrections that we've seen thus far have proved to be buying opportunities, and each time there has been a correction it's been left behind in the dust by investors who want to pile in and drive the market even higher."

The benchmark Shanghai Composite Index .SSEC closed a modest 0.5 percent lower, but is still up 55 percent so far this year and up 278 percent in the past two years.

Tokyo's Nikkei .N225 eased 0.1 percent, while MSCI's All-Country World index .MIWD00000PUS eased 0.4 percent from Thursday's all-time high.

CRUDE RISES ON IRAN WORRIES

Higher energy prices also took their toll on stocks, with London Brent crude LCOc1 up 44 cents to $71.04, having hit a nine-month high of $71.29 earlier in the session.

Oil prices rose after a report by the United Nations' nuclear agency opened the way for tougher sanctions against Iran, the world's fourth biggest crude exporter.

Among other commodities, copper rose 2.2 percent in Shanghai, supported by signs of supply shortfalls but strength in the dollar weighed on gold XAU=.

The euro dipped after the Ifo data failed to provide evidence of the need for the European Central Bank to increase the pace of its monetary tightening. "There is nothing in the data for the market to increase rate hike expectations," said Peter Frank, senior FX strategist at ABN AMRO.

The euro EUR= was down 0.2 percent at $1.3435, after rising as high as $1.3502 on Wednesday, and traded around 163.20 against the yen EURJPY=R, down around 0.3 percent.

The dollar bought around 121.45 yen JPY=, staying near a three-month high of 121.88 hit the previous day.

Currency traders were looking to U.S. durable goods orders and new home sales data later for signs of any shift in the interest rate outlook. Receding expectations of a Fed rate cut this year have recently been boosting the dollar.

Government bonds rallied from multi-year lows, boosted by the weaker stock sentiment and the Ifo numbers.

The June Bund future FGBLM7 was 15 ticks higher at 112.59, having hit a contract low of 112.32 on Wednesday, while the yield on 10-year Bunds EU10YT=RR eased to 4.357 percent.