GLOBAL MARKETS-European shares head for first weekly drop since April

Fri Jun 27, 2014 9:19am EDT

* European shares inch up, but Iraq, data weigh
    * Most Asian markets down with U.S. outlook in spotlight
    * U.S. 10-year yield near 3-week low, German yield near
1-year trough
    * Canadian dollar at 6-month high following inflation
surprise
    * Wall Street set for second week of losses in three

    By Marc Jones
    LONDON, June 27 (Reuters) - Concern about Iraq and Ukraine
and subdued economic data left European shares facing their
first week of losses since early April on Friday. Gold rose to
near a two-month high.
    Other safe-haven assets - the yen, Swiss franc and German
and U.S. government bonds - were also in demand as investors
backed away from the riskier bets they have been making for much
of this year.
    Stock rose slightly in London, Frankfurt 
and Paris but fell in Greece and Portugal. Losses
earlier in the week meant European shares were set to bring a
10-week run of gains to an end. 
    Fighting between Iraqi forces and insurgents raged in the
home town the late dictator Saddam Hussein and Russia warned of
"grave consequences" as Ukraine signed a trade and political
agreement with the European Union.
  
    The uncertainty, along with a run of disappointing data this
week, meant that Wall Street was poised for another
subdued start and its second week of losses in the last
three.
    "Part of it was the GDP shock two days ago, then we get the
soft consumer spending data," said Philip Marey, a U.S. focused
economist at Rabobank. "A few weeks ago, there was this big
exuberance and the sky was the limit and now those hopes have
really faded."
    Gold was closing in on a fourth straight weekly gain at
$1,315 an ounce, as the geopolitical unrest boosted its appeal
and the soft U.S. data weakened the dollar.       
    On the other hand, any substantial slowdown in major
economies could keep interest rates at record lows for longer.
The mixed messages kept markets struggling for clarity.
     "The advance has stopped for a while, but there has been no
five or 10 percent correction," said Alvin Tan, a strategist at
Societe Generale. "And that is a result of the environment of
very low volatility we have at the moment."
    Investors were also digesting an unexpected drop in euro
zone business and consumer confidence data and a
small rise in German inflation numbers. Both are important for
the  European Central Bank's future policy.
    The decline in sentiment confirmed recent PMI data,  and
underscored the low gear the 18-country bloc's economy was stuck
in and the need for European leaders to accelerate growth plans.
   
 
    OIL 
    Not all market moves fitted with conventional wisdom.
    Oil, usually the most sensitive to Middle East unrest, was
on course for its biggest weekly drop since January, since the
fighting in Iraq has not yet spread to the south where most of
the country's oil is produced. 
    At $113 a barrel, prices have dropped nearly $3 from a
nine-month high of $115.71 hit on June 19. "The exaggerated fear
premium is being priced out," said Carsten Fritsch, a senior oil
and commodities analyst at Commerzbank in Frankfurt. 
    Asian shares had followed Wall Street lower overnight.
Japan's benchmark Nikkei fell 1.5 percent and regional
markets, with the exception of Wellington and Mumbai, all posted
losses.
    The 10-year U.S. Treasuries yield held near a four-week low
at 2.52 percent in European trading.
    The U.S. dollar index also stuck tight to one-month
lows reached on Wednesday. At 80.150, it stood just above its
low of 80.091. The dollar also hovered around a five-week low of
101.315 yen. 
    The euro was little changed at $1.3618 after the euro
zone data. 
    Standout performers were the New Zealand dollar, which was
close to its highest in nearly three years on rate hike bets,
and the Canadian dollar, which rose to a six-month high as
investors sought out higher-yielding currencies.
    Among emerging markets, Central European currencies were
broadly weaker against the euro . But the
Russian rouble rose to a five-month high as traders
wagered that any new Western sanctions would be flimsy.
    "In all honesty. I don't think that Russia will intervene
further in Ukraine," said Peter Elam Hakansson, fund manager
Chairman of East Capital. 
    "If they did, the rest of Ukraine would immediately rush to
join NATO and ally with the West... That would mean they would
lose any influence in Ukraine, and that is not what they want."
        

 (Reporting by Marc Jones; Editing by Larry King)
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