| LONDON, March 31
LONDON, March 31 European stocks trimmed gains
on Monday while government bond yields and the euro rose after
weak euro zone inflation data cemented expectations the European
Central Bank will ease policy but also prompted investors to
take profit on these bets.
Inflation across the 18-nation bloc fell to 0.5 percent in
March, according to preliminary estimates. That is the lowest
level in over four years and likely to support expectations the
ECB could act to counter the deflationary threat as early as
this week when it holds its next policy meeting.
But the low number was not a major shock. So after stocks
briefly popped higher and the euro slipped in anticipation the
ECB will soon act, traders shifted their focus to the looming
end of the first quarter and reduced their positions.
"It is only a matter of time before the (ECB's) Governing
Council will conclude that it needs to take further policy
action to prevent a worsening of the medium-term inflation
outlook," wrote Capital Economics in a note to clients.
"Action later this week cannot be ruled out," it said.
As the second quarter looms, investors are drawing comfort
from expectations of further stimulus from the ECB and Chinese
authorities, which they hope will mitigate the gradual
withdrawal of stimulus from the U.S. Federal Reserve.
At 1015 GMT the FTSE EuroFirst 300 index of leading shares
was up 0.1 percent at 1,333 points. Britain's FTSE 100
was up 0.2 percent at 6,627 points, Germany's DAX
was down 0.1 percent at 9,574 points and France's CAC
40 was down a similar amount at 4,405 points.
U.S. stock futures pointed to gains of between a
third and half of one percent across the three major U.S.
Earlier in Asia, the MSCI's broadest index of Asia-Pacific
shares outside Japan rose 0.9 percent to close
at a three-week high of 137.84 points, on heightened speculation
Beijing will launch new spending measures and on reduced
geopolitical and military tensions in Ukraine.
Tokyo's Nikkei stock average also rose 0.9 percent
to a three-week high of 14,827 points, supported by comments
from China's Premier Li Keqiang on Friday that Beijing was ready
to support the cooling economy, saying the government had the
necessary policies in place and would push ahead with
SPANISH BOND BONANZA
It has been a lacklustre quarter for equity investors,
however, with Wall Street and the main European indices only
managing to eke out slender gains of around 1 percent.
The U.S. central bank has started trimming its bond-buying
stimulus, and new Fed chair Janet Yellen said on March 19 that
interest rates could start to rise six months after the bond
buying is finished completely. That could be early next year.
Yellen will speak in Chicago later on Monday and the focus
is on whether she maintains her stance on rates, which the
market has interpreted as hawkish.
The 10-year yield on U.S. Treasuries rose on Monday to 2.75
percent. This lent broad support to the dollar,
which was flat on the day against a basket of six major
currencies at 80.2.
The euro rose a quarter of one percent to $1.3784,
drifting up from Friday's one-month low. On Saturday, Bundesbank
president Jens Weidmann said the euro zone was not in a
deflationary cycle and the ECB should not over-react to low
"The weaker CPI reading means that the ECB doves now have an
argument in favour of moving sooner rather than later. Even if
the ECB does not act this week, the euro should be under
pressure from stronger U.S. data," BNP Paribas strategists said.
German benchmark 10-year yields rose to 1.59 percent
, while in peripheral euro zone bond markets Spanish
10-year yields were steady on the day at 3.24 percent
, near Friday's eight-year low of 3.2 percent.
Even after six consecutive quarters of decline, the fall in
Spanish yields accelerated in the first quarter. The plunge of
around 90 basis points in the first three months of the year is
the biggest quarterly fall since the end of 1996.
In emerging markets, Turkey's lira hit a two-month high
against the dollar after Prime Minister Tayyip Erdogan declared
victory in local polls that had become a referendum on his rule,
stirring hopes months of political turbulence would ease. The
lira brushed 2.165, its strongest against the
greenback since late January.
In commodities gold ticked higher to $1,295.80 an
ounce, picking up from Friday's six-week low of $1,285.34, and
U.S. crude oil futures edged down 20 cents to $101.47 a
barrel after settling on Friday at its highest level since March
(Reporting by Jamie McGeever; Editing by Pravin Char)