European stocks ease, oil makes up ground

LONDON (Reuters) - European stock markets eased on Monday after sharp Friday gains while oil prices, which had tumbled before the weekend, made up a little of their lost ground.

With trade thin because London markets were closed, sterling hit a two-year low against the dollar in the aftermath of data showing a stagnant British economy in the second quarter.

Euro zone government bond yields fell sharply after a G20 finance official told Reuters the International Monetary Fund had trimmed some of its forecasts for economic growth, with the euro zone figure for 2008 cut to 1.4 percent from 1.7. percent.

Futures trading indicated Wall Street would open slightly lower, ahead of U.S. July existing homes sales data due at 10:00 a.m. EDT.

Lehman Brothers LEH.N was down about 10 percent in European trade after a South Korean regulator voiced concern about state-run Korea Development Bank's KDB.UL interest in buying a global bank, possibly Lehman.

In Europe, the FTSEurofirst 300 index was down 0.34 percent after a 1.8 percent gain on Friday, but analysts continued to believe that the gloom hanging over stockmarkets had lifted a little.

"The clearly positive sign is that the raw material, oil and food prices are on the decline and the inflation outlook is more favorable," said Tuomas Komulainen, Helsinki-based strategist at Danske Market Securities.

"On the negative side is the euro zone economy slowing more than expected, but overall things are slightly more positive for equities," he added.

The oil and gas sector shares were weaker following Friday's 5.4 percent fall in oil prices with Total (TOTF.PA) losing 1.13 percent and Royal Dutch Shell (RDSa.AS) down 0.46 percent.

But oil prices moved higher with U.S. light crude for October delivery up 76 cents at $115.35 a barrel as analysts said they felt traders saw a bottom to the market following Friday's falls.

"Some of them may be seeing a buying opportunity at these price levels," said Gerard Rigby at Fuel First Consulting in Sydney. "Lingering concerns about Russia and Georgia are also giving some support."

DOLLAR MAKES GAINS

The dollar benefited from the oil price drop and from recent signs that Europe and Asia are feeling the effects of the global credit and commodity crunches every bit as keenly as the United States.

The latest sign of this came on Friday when Britain reported that its economy registered no growth at all in the second quarter, so in early trading sterling bore the brunt of the dollar's resurgence.

The British currency hit a two-year low of $1.8407 before rebounding to $1.8538, and the euro was slightly lower at $1.4770.

"The general sentiment towards lower rates and towards the U.S. economy managing to get out of the global crisis earlier than the other economic areas will support the dollar over the next couple of months," said Antje Praefcke, currency strategist at CBCM in Frankfurt.

Euro zone government debt prices rebounded from two-week lows hit the previous session on the easing in equity markets and the news that the IMF had cut its euro zone GDP forecast while maintaining a 1.3 percent 2008 growth figure for the United States.

The two-year Schatz yield slipped 11.3 basis points on the day to 4.025 percent.

(Editing by Stephen Nisbet)