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GLOBAL MARKETS-Shares, euro slip ahead of Bernanke speech
* Euro retreats as speculation mounts Fed will remain mum
* U.S. shares follow Europe lower as investors close out positions
* Treasury prices gain as stocks fall back
By Herbert Lash
NEW YORK, Aug 30 (Reuters) - Stocks fell and the euro retreated on Thursday as investors pared back expectations that Federal Reserve Chairman Ben Bernanke will signal a new round of economic stimulus in a key address on Friday to central bankers.
A successful Italian bond sale pointed to growing confidence among investors that the European Central Bank will take measures shortly to tackle more effectively the debt crisis that has plagued the 17-member currency bloc.
But investors grew more doubtful that Bernanke will deliver firmer hints on more monetary easing during a highly anticipated speech in Jackson Hole, Wyoming.
Hopes for further easing had grown since minutes of a recent Fed meeting showed policy-makers could act "fairly soon."
U.S. shares slid and European stocks hit a four-week low as investors closed out positions ahead of Bernanke's speech, which is expected to provide some clues to the Fed's next move.
"The market is somewhat extended but you could blow in the wrong direction and something is going to happen," said Stephen Massocca, managing director of Wedbush Morgan in San Francisco.
"It's hard to draw a lot of conclusions given how thin the markets are," he said.
All 10 S&P sectors were lower. The cyclical groups, which closely track the pace of economic growth, declined.
Over the past three weeks the benchmark S&P 500 index has traded in a tight range between 1,400 and the April 2 high of 1,422.38, which has acted as a resistance point to new peaks.
The Dow Jones industrial average was down 91.13 points, or 0.70 percent, at 13,016.35. The Standard & Poor's 500 Index was down 9.79 points, or 0.69 percent, at 1,400.70. The Nasdaq Composite Index was down 30.03 points, or 0.97 percent, at 3,051.15.
In Europe, the FTSEurofirst 300 index of top European shares closed down 0.8 percent at 1,077.93.
MSCI's all-country world equity index, which has edged down over the past seven sessions, was 0.9 percent lower at 320.47.
"People are starting to realize that there is not going to be a huge amount of action from the Jackson Hole meeting. But I don't see a massive sell-off either as the market is waiting for a positive action from the European Central Bank," said James Butterfill, global equity strategist at Coutts.
Any signal from Bernanke that the U.S. central bank will embark on another asset-buying program would weigh broadly on the dollar.
The euro fell 0.3 percent at $1.2494, while the U.S. dollar index was up 0.3 percent at 81.751.
A rise above $1.2590 would mark the euro's strongest level in eight weeks.
Investors and economists have become more skeptical over the past two weeks that the Fed will announce another round of bond buying, or "quantitative easing," at its mid-September meeting, according to Reuters polls during the last week.
"The risk with Jackson Hole is that unless there are further strong signals of more easing, the market will take it as a disappointment," said Christian Lawrence, currency strategist at Rabobank, adding that this would be positive for the dollar.
"The bar is quite high, and if there is any paring back of talk of QE, the market is likely to react more because it is more or less expecting it."
The euro gained some support earlier in the day after Chinese Premier Wen Jiabao, who met German Chancellor Angela Merkel in Beijing on Thursday, said he was confident the euro zone could pull out of its debt crisis and that China would be willing, after a proper risk assessment, to keep buying the region's government debt.
Meanwhile, iron ore prices fell to their lowest levels since 2009, dragging down shares in miners including Rio Tinto and BHP Billiton, as a slowdown in top consumer China threatened to further sap demand.
U.S. Treasuries gained in price. Discounting the likelihood of the Fed's launching new stimulus when it meets next month has been the predominant trade in recent weeks despite uncertainty over what debt would be purchased in any new program.
The benchmark 10-year U.S. Treasury note was up 9/32 in price to yield 1.6216 percent.
Growing expectations of a beefed-up bond-buying program from the ECB encouraged solid demand at a sale of 7.3 billion euros ($9.15 billion) of new five- and 10-year Italian sovereign bonds on Thursday.
Oil futures hovered near $113 a barrel as investors looked to forthcoming data to shed light on the direction Bernanke might take. The Chicago Purchasing Managers Index and factory orders are due out on Friday and could shed light on the economy of the world's largest crude buyer.
Brent crude for October delivery rose 53 cents to $113.07 a barrel. U.S. crude fell for a second session, down 93 cents to $94.56 a barrel.
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