* European shares stabilise after sell-off, Asian shares subdued
* Euro holds its ground before ECB, eyes on inflation forecasts
* Strong U.S. jobs numbers heighten Fed angst ahead of payrolls
By Marc Jones
LONDON, Dec 5 European shares steadied on Thursday after three days of selling, as focus turned to whether the European Central Bank will offer any new economic stimulus after the Bank of England left its interest rates at a record low.
Markets remained under pressure amid peculation about the future of U.S. monetary stimulus. That kept bond yields elevated and left shares struggling to recover from this week's declines.
European shares were virtually flat before the 1245 GMT ECB rate decision and 1330 GMT news conference, as traders waited to hear what the head of the bank, Mario Draghi, had to say.
The euro was biding its time around $1.36. Benchmark German government bond yields stabilised after they were pushed to a six-week high by a rise in U.S. yields on Wednesday.
The ECB is expected to hold off any new policy action after delivering a surprise rate cut last month. Attention is shifting to the bank's new economic forecasts, amid worries the euro zone is slipping towards Japan-style deflation.
"The main focus will be the forecasts and what will 2015 look like," said Ned Rumpeltin, the head of G10 FX strategy for Standard Chartered. "If the inflation mid-point is below 1.5 percent, I think that is an affirmation of their easing bias through next year."
The Bank of England left its rates and bond buying unchanged, as expected. Markets still remained cautious before the ECB meeting and U.S. economic data, particularly the non-farm payrolls report on Friday.
After suffering its biggest one-day fall in six weeks on Wednesday, the Nikkei ended down another 1.5 percent, retreating further from this week's six-year closing high.
"Starting from two days back, people are starting to get quite nervous about the market," a Tokyo-based senior trader at a European bank said.
The dollar has also faded below 103.00 yen, giving investors an excuse to book profits on the market's gains. The Nikkei is up 8 percent since early November, and 46 percent on the year so far.
Offshore funds appeared to be cheering for the market. Foreigners bought a net 368 billion yen worth of Japanese shares in the week through Nov. 30, on top of 709 billion yen in the week before that.
Caution had also ruled elsewhere in Asia, with MSCI's broadest index of Asia-Pacific shares outside Japan off 0.4 percent, and Shanghai down 0.2 percent.
Australia's main index shed 1.4 percent as Qantas Airways tumbled as much as 15 percent. The carrier Fissued a profit warning and announced job cuts.
Wall Street was indecisive on Wednesday, and early futures prices pointed to another subdued start in New York later.
Strong U.S. data this week has triggered a stock market and bond sell-off on expectations an improved economy means monetary stimulus will be withdrawn. A strong reading on private hiring has led to speculation payrolls could be upbeat, hastening the day when the Federal Reserve starts trimming its asset buying.
Although data on services and housing were more mixed, the risk was enough to leave 10-year Treasury yields near three-month highs at 2.82 percent by 1200 GMT. But rising long-term yields are exactly what the Fed wants to avoid, so the gain argues against a start of tapering this month.
The lift in yields helped the U.S. dollar regain some ground on the yen, though it had faded back below 102 as Europe gathered pace. It may get further support if U.S. gross domestic product data gets revised up later Thursday.
A major mover was the Canadian dollar, which sagged to 3 1/2-year lows after the Bank of Canada issued a dovish policy statement, highlighting the risks of weakening inflation.
The euro was steady at just under $1.36, after rebounding from a low of $1.3527 on Wednesday. Service sector data had showed activity in Italy and France shrinking in November but expanding in Spain and Germany, highlighting the divergence in the bloc.
There was more good news for Spain as Moody's upgraded its credit outlook to stable from negative, citing a rebalancing of and a brighter medium-term view for the country's economy.
In commodity markets, spot gold edged back to $1,233 an ounce, giving up some of Wednesday's 1.7 percent rally.
U.S. crude added another 25 cents to $97.45, on top of a 1.2 percent rally on Wednesday after data showed domestic crude stocks fell by 5.6 million barrels, snapping 10 straight weeks of builds. Brent crude hovered at $111.87.