* Euro pinned at $1.3600 awaiting outcome of ECB meeting
* ECB seen cutting all its rates, but much already priced in
* HSBC/Markit May services PMI drops to 50.7, from 51.4
By Wayne Cole
SYDNEY, June 5 Asian share markets grudgingly
gave ground on Thursday while the euro flatlined at $1.3600,
hostage to great expectations that the European Central Bank
will finally end months of dithering by easing policy further.
Not helping was a drop in HSBC/Markit's measure of the China
service sector to 50.7 in May from April's 51.4, though that was
still above the 50-point level that is supposed to separate
growth from contraction.
The findings buck the trend seen in other China surveys in
recent days which suggested the economy may be stabilising after
a weak start to the year and raise the question of whether
Beijing needs to do more to put a floor beneath growth.
Japan's Nikkei shed early gains to be up just a
sliver at 15,082 points, so far failing to extend a two-week
rally to test the April top of 15,164.
MSCI's broadest index of Asia-Pacific shares outside Japan
dipped 0.1 percent, while South Korea's market
lost 0.6 percent.
Wall Street had been just as hesitant with the Dow
ending up 0.09 percent, while the S&P 500 gained 0.19
percent and the Nasdaq 0.41 percent.
The economic outlook was no clearer after a mixed bag of
U.S. data that included disappointing results on the trade
deficit and private employment, but better news on the service
Still, it was notable that JPMorgan's measure of global
industry output boasted a strong rise of 1.5 points in May,
hinting at a broadening and strengthening in world growth.
In currency markets, the euro held a tight orbit around
$1.3600 awaiting the outcome of the ECB policy meeting at
1145 GMT and President Mario Draghi's news conference at 1230
Economists in a Reuters poll expected the ECB to cut its
main refinancing rate by 15 basis points to 0.10 percent and the
deposit rate to -0.10 percent from zero.
Imposing a negative deposit effectively charges banks for
parking their excess money at the central bank -- a step that
may, or may not, encourage them to lend the money instead.
The ECB is also thought likely to launch a refinancing
operation aimed at funding smaller business across the EU, but
to stop far short of the sort of quantitative easing embraced by
the U.S., UK and Japan.
However, with so much already priced in to markets it could
be difficult for policymakers to proffer a positive surprise.
"We continue to think that risks going into ECB are biased
to the central bank underwhelming the market and are tactically
positioned for a bounce in EUR/USD," cautioned JPMorgan
strategist Niall O'Connor.
"The ECB's tone and message will be just as if not more
important than the alphabet soup of policy announced -- does
this represent a step change or a sea change for the ECB?" he
"We believe attitudes will change only gradually but we'll
have to wait and see."
Yet, expectations of ECB action have helped drive German
bond yields lower, giving the dollar a larger rate advantage.
Indeed, U.S. two-year Treasuries are now offering a
premium of 34 basis points over their German counterparts
, the fattest margin in almost seven years.
A break below the recent trough at $1.3585 could see the
euro gap to support in the $1.3475/$1.3500 area. The U.S. dollar
index was steady at 80.658, while the currency kept most
of its recent gains on the yen at 102.60.
Benchmark 10-year Treasury yields were at 2.593 percent
after rising to levels not seen since mid-May.
In commodity markets, copper was subdued after suffering its
biggest one-day fall since mid-April amid jitters about the
impact on financing deals from a probe at a Chinese port.
Benchmark copper was changing hands at $6,783 a
tonne, having shed 1.2 percent on Wednesday.
Gold was idling at $1,243.15 an ounce, still pinned
near a recent four-month trough of $1,240.61.
Brent crude for July delivery was last down 16 cents
at $108.24 a barrel. U.S. crude eased 29 cents to $102.35
(Editing by Shri Navaratnam & Kim Coghill)