* FTSEurofirst 300 down 0.4 pct, Euro STOXX 50 down 0.2 pct
* Drop in inflation cements expectation of ECB action
* Risks seen on the downside if no new ECB measures unveiled
By Blaise Robinson
PARIS, June 3 European shares slipped on Tuesday
in thin volumes and some benchmark indexes retreated from
multi-year highs as investors held back from chasing stocks
higher before Thursday's European Central Bank meeting.
Expectations of fresh measures by the central bank to
support the region's fragile economic recovery and avoid
deflation were cemented on Tuesday after data showed euro zone
inflation unexpectedly fell last month.
The ECB is widely expected to trim its refinancing rate,
send its deposit rate into negative territory and launch a
long-term refinancing operation (LTRO) targeted at businesses.
"In the current situation, the ECB has no other choice than
to react," said Mathieu L'Hoir, strategist at AXA Investment
Managers, which has 562 billion euros ($764 billion) under
"If (ECB President Mario Draghi) doesn't do it you can be
absolutely sure the euro will move above the $1.40 mark and will
rise well beyond it. The rise in the euro drags down the price
of imported goods and creates deflationary pressures."
At 1411 GMT, the FTSEurofirst 300 index of top
European shares was down 0.4 percent at 1,374.78 points, after
hitting a 6-1/2 high on Monday, while the euro zone's blue-chip
Euro STOXX 50 index was down 0.2 percent.
Germany's DAX, which hit a record high on Monday
just below the 10,000 mark, was down 0.3 percent.
Despite recent economic data pointing to a
slower-than-expected recovery for the euro zone, share prices
have been supported by the prospect of fresh intervention from
So far this year, the FTSEurofirst 300 has gained 4.6
percent, led by peripheral markets such as Italy and Spain.
Milan's FTSE MIB index is up 14.4 percent year-to-date,
while Madrid's IBEX is up 9.1 percent.
"Stocks are buoyed by hopes to see the ECB unveil new
measures, conventional and unconventional," said David Thebault,
head of quantitative sales trading, at Global Equities.
"Draghi has been very credible so far, but with stock
indexes at such levels, if he fails to deliver this week, the
disappointment could spark a real pull-back."
For investors betting on further ECB action, Bank of
America-Merrill Lynch strategists suggest buying construction
and financial services stocks.
"Any potential easing or policy response which is
growth-positive could lead to some cyclical sector
outperformance," they wrote in a note. "Construction and
financial services are both cyclical and fare well on earnings
revisions and on positioning as both are under-owned by
Bucking the trend on Tuesday, shares in Logitech
rallied 3.4 percent in what traders called a relief rally for
the computer accessories maker after Apple kicked off
an annual developers' conference without unveiling new products
competing with Logitech.
UK building materials supplier Wolseley rose 2.1
percent after posting a rise in quarterly revenue, lifted in
part by strong trading in the United States.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up
(Additional reporting by Leigh Thomas; Editing by Ruth