* Ukraine election could send jitters through markets
* Eyes on ECB board's signals ahead of June policy meeting
* Housing data due in Britain and United States
* BoE Governor Carney due to speak Tuesday evening
* Japan data due including retail sales, inflation, jobs
By Ana Nicolaci da Costa
LONDON, May 25 Investors this week will be
watching the results of elections that could deal a blow to
political parties that are key to reform efforts in the European
Union and could also fan instability in Ukraine.
The bonds of some struggling euro zone governments sold off
last week as investors worried about expected gains for anti-EU
parties in European Parliament votes in Greece and Italy.
In Greece, a strong showing by parties opposed to the terms
of its EU-led bailout may hurt the fragile coalition government,
potentially paving the way for a new national vote.
In Italy, a poor result for Prime Minister Matteo Renzi's
party could undermine his drive for swift reforms, which he
promised when he took power in a party coup earlier this year.
The rise of anti-EU parties in northern Europe could make it
harder for the European Union to deal quickly with any future
resurgence of the euro zone crisis, analysts said.
"It looks like we are going to see the far-right parties
making further gains and it is going to make it more difficult
for the European authorities to deal with any subsequent euro
crisis events," said Victoria Clarke, economist at Investec.
Elections for the European Parliament were held from May 22
Ukrainians vote in a presidential election on Sunday and if
favourite Petro Poroshenko falls short of an absolute majority,
market jitters could grow ahead of a second round of voting on
Tensions between Ukraine and Russia have escalated in recent
months, with Kiev accusing Moscow of sowing deadly disorder in
its mostly Russian-speaking east, where pro-Moscow separatists
have declared independence and asked to join Russia.
"(If) we head to a second-round vote ... then we might find
that we see risk assets suffering in the process until some form
of stability has been put in place. So that could be a couple of
quite painful weeks and would, if anything, reinforce the case
for ECB policy easing on June 5," said Clarke of Investec.
The European Central Bank is widely expected to cut interest
rates then, a Reuters poll showed, having clearly flagged that
possibility at its last monetary policy meeting.
All this means a three-day ECB forum in Portugal that starts
on Sunday and features president Mario Draghi and several ECB
board members will be keenly watched by the markets.
Euro zone money supply data on Wednesday and Italian and
Spanish inflation numbers on Friday may reinforce the case for
more easing if they come in weak.
"The euro area's economic recovery is bedding in, but
inflation is well below the ECB's target and there is a risk
that deflation could take hold across the region," Standard
Chartered said in a research note.
"This could elicit more expansionary policy."
But David Mackie, chief European economist at JP Morgan does
not expect an ECB rate cut in June to be the start of a
sustained campaign to provide more stimulus.
"We have not changed our broad macro story, which is that
the region is heading towards a 2 percent growth environment,"
he said. "So we don't think that what will happen in June would
then be followed by more aggressive action later in the year."
In contrast to the ECB, both the Bank of England and the
Federal Reserve are considering their way out of their stimulus
programmes as their economies recover, even though U.S. data is
expected to show contraction in output in the first quarter.
But the housing market, which is strengthening in Britain
and losing steam in the United States, could yet complicate
matters for both central banks, analysts say.
Britain has said it will use mortgage lending controls
before resorting to interest rates to cool the sector.
BoE Governor Mark Carney is due to speak on
But the U.S. housing market may yet require more help from
"Both central banks are putting together their strategies
for exiting the ultra-loose monetary policy that we've had over
recent years but at opposite ends of the scale in terms of their
considerations for the housing sectors," Clarke said.
"In the UK, the talk is about whether there is a possible
housing bubble and in the States (it) is virtually the opposite
... the Fed has the problem of working out whether its housing
sector can withstand a policy tightening probably in the early
part of next year."
Housing data from both countries this week could shed
further light on this, with British Bankers Association's
mortgage lending data due on Tuesday followed by statistics on
the Help to Buy mortgage guarantee programme on Thursday.
In the United States, the house price index is due on
Tuesday and pending home sales on Thursday.
A second estimate of U.S. gross domestic product on Thursday
is expected to show the economy contracted 0.4 percent in the
first quarter - when much of the country was bit by fierce
winter weather - from a previous reading of 0.1 percent growth,
according to a Reuters poll.
National Australia Bank said a soft reading in the first
quarter would not change the outlook for the Fed which is
scaling back its bond-buying.
Japan also releases a slew of data this week, including
retail sales, inflation, unemployment, and industrial output.
(Additional reporting by John Geddie; Editing by Hugh Lawson
and Alison Williams)