GLOBAL MARKETS-Focus on BoE, highlights contrast with dovish ECB

Wed May 14, 2014 4:21am EDT

* Sources say ECB June rate cut "more or less a done deal"
    * Investors looking at British employment data, BoE report
    * Euro pushed to 16-month low against sterling

    By Jamie McGeever
    LONDON, May 14 (Reuters) - European shares eased back from
multi-year highs on Wednesday and the euro licked its wounds
after slumping to a five-week low as the focus shifted to an
economic outlook from the Bank of England for clues on when UK
interest rates will rise.
    News on Tuesday that the Bundesbank is ready to support
further easing steps from the European Central Bank next month
if they are warranted ensured a limited rebound for the euro and
an equally shallow dip in stocks from these peaks.
    Sources also told Reuters that a rate cut next month is
"more or less a done deal". 
    After the sizeable ECB-driven moves across equities, bonds
and currencies on Tuesday, the focus switched to the BoE on
Wednesday.
    Investors will look to British employment data, the central
bank's quarterly inflation report and comments from governor
Mark Carney for signs on the timing of an expected rise in
interest rates, which some analysts now speculate could come in
late 2014 rather than early next year.
    This would likely mean the BoE being the first G4 central
bank to raise rates from the post-recession record lows of
virtually zero across Britain, the United States, euro zone and
Japan.
    "Governor Carney will try to soothe the market's fears of an
overheating housing market," SocGen analysts said in a note to
clients.
    "He is not yet ready to tighten policy," they cautioned.
    Still, the contrasting policy bias of the ECB and BoE pushed
the euro to a 16-month low against sterling on Wednesday of
81.23 pence.
    The euro regained a footing against the dollar, however,
ticking up 0.1 percent to $1.3720. On Tuesday it fell
below $1.37, marking a near 3-cent fall in less than a week.
    Britain's FTSE 100 index of leading shares was down
0.2 percent at 6859 points.
    The FTSEurofirst 300 index of leading European shares was
down 0.1 percent at 1367 points, hovering close to
Tuesday's six-year high. The FTSEurofirst 300 has risen some 7
percent from lows in March. 
    Germany's DAX was flat on the day at 9752 points.
Earlier on Wednesday it had climbed 0.2 percent to 9,771.40
points, back within reach of a record high of 9,794 points
reached in January.
    
    ITALIAN BOND STRENGTH
    Asian shares rose to their highest level in more than a
month on Wednesday after the S&P 500 closed at a record high
overnight.
    MSCI's broadest index of Asia-Pacific shares outside Japan
 added 0.8 percent, after earlier hitting its
highest level since April 10.
    Hong Kong shares were up more than 1 percent as
investors snapped up property and banking stocks after China's
central bank urged mainland banks to speed up the granting of
home loans.
    Japan's Nikkei bucked the trend, slipping about 0.1
percent and moving away from the previous session's 1-1/2-week
high as investors took profits.
    In bond markets, Italian yields held near record lows before
the sale of a longer-dated bond in Rome that is expected to fare
well, after Spain's first inflation-linked bond issue on Tuesday
drew bids of more than 20 billion euros.
    Plans for the new Italian 15-year bond issue, to be sold via
syndication, were unveiled late on Tuesday.
    "The key theme here is that demand for peripheral paper is
very strong and the Spanish linker showed 70 percent of the
issue was picked up by foreign investors and the Italian
syndication should show a similar trend," said Commerzbank
strategist Michael Leister.
    Italian 10-year yields were steady at 2.94
percent, not far from the record low 2.90 percent hit last week,
and Spanish 10-year yields dipped 1 basis point at
2.89 percent with Irish equivalents were also slightly lower,
both heading back towards record lows.
    In commodities trading, U.S. crude added about 0.4
percent to $102.04 a barrel, extending Tuesday's two-week highs
hit on expectations that weekly inventory reports will show
record-low stockpiles.
    Spot gold rose half of 1 percent to $1,300 an ounce.

 (Additional reporting by Emelia Sithole-Matarise in London and
Lisa Twaronite in Tokyo; Editing by Alison Williams; To read
Reuters Global Investing Blog click here;
 for the MacroScope Blog click on blogs.reuters.com/macroscope;
 for Hedge Fund Blog Hub click on blogs.reuters.com/hedgehub)
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