* European shares edge down from two-month highs
* Euro struggles on weak data, ECB meeting eyed
* Trade subdued with U.S. closed for Independence Day
By Richard Hubbard
LONDON, July 4 World shares, the euro and oil
prices fell on Wednesday as evidence grew of the headwinds
facing the global economy, though hopes of policy easing by
major central banks limited the falls.
Strong demand for safe-haven German debt at a bond auction
also signalled that investors remain worried about the
implementation of recently agreed measures to help ease the euro
zone's debt crisis, with Spanish and Italian bond yields higher.
However, activity was very subdued with U.S. markets closed
for the Independence Day holiday and before policy decisions
from the European Central Bank and Bank of England on Thursday.
In the quiet market Germany still found it easy to sell 3.3
billion euros ($4.2 billion) of 5-year government bonds,
receiving bids for 2.7 times the amount on offer at an average
yield of just 0.52 percent.
"What we are seeing is that ... this demand for safety
remains intact," said Michael Leister, rate strategist at DZ
After the auction 10-year Spanish bond yields
rose 14 basis points to 6.4 percent, and the Italian equivalent
rose 12.5 basis points to 5.77 percent.
The euro steadied against the dollar to trade around $1.2525
, under pressure from widespread expectations that the ECB
is about to cut interest rates.
The single currency fell to an 11-1/2 year low against the
higher-yielding Swedish crown when Sweden's central bank kept
its main interest rates unchanged.
European share markets ended three days of gains, with the
FTSEurofirst 300 index of top European shares finishing
down 0.2 percent at 1,044.29 points, retreating from a two-month
high set on Tuesday.
MSCI's world equity index also snapped a
three-day rally, dipping 0.1 percent to 316.03 points.
Equity markets began their latest rally on Friday, having
fallen sharply for much of June, after European Union leaders
agreed on new measures to support the region's banks and address
funding problems facing Spain.
Investors have also been encouraged back into riskier asset
markets by the belief that the ECB will cut rates on Thursday
and that it may also inject fresh funds to help boost the
region's struggling economy.
A Reuters poll of economists showed a majority of economists
expect the ECB to cut its main rate by 25 basis points to 0.75
percent on Thursday, while money market traders are evenly split
on whether the central bank will cut the deposit rate, a
separate survey showed.
"Investors will also want to see if the ECB President (Mario
Draghi) will highlight downside risks to growth and inflation,
which will set the ground for more easing," said Paul Robson,
currency strategist at RBS.
The Bank of England is expected to launch a third round of
monetary stimulus at its meeting.
Data releases from across the globe continue to add weight
to the view that the world economy is slowing down.
An survey of private Chinese service sector firms showed
their activity growing at the slowest rate in 10 months in June
as new orders growth cooled, although the services Purchasing
Managers Index has shown 43 months of expansion.
Another survey revealed that Germany's services sector
unexpectedly stagnated in June, ending an eight-month period of
expansion as new orders dropped.
A composite Purchasing Managers' Index (PMI) for the whole
euro area, which surveyed thousands of companies, was revised up
in June, but has been below the 50 mark that separates growth
from contraction for nine of the last 10 months.
"The PMIs are bottoming out at a level consistent with
further contraction of (economic) activity in the second
quarter," said James Nixon, chief European economist at Societe
Generale, of the euro zone PMIs.
The prospect of further central bank monetary easing has
supported the prices of gold and other commodities this week,
but the increasingly grim news about the health of the world
economy has sparked a retreat.
"We believe that the euro zone crisis, the U.S. fiscal
cliff, and the possibility of a hard landing in China will give
the markets plenty to worry about and will keep risk appetite
low and constrained," Societe Generale said.
The bank has lowered its price outlook for Brent crude by $5
a barrel to $100.
Brent crude, which had also been gaining on rising tension
over Iran's nuclear programme, was $1.10 lower at $99.58 per
barrel after jumping more than 3 percent on Tuesday.
Brent crude was trading as low as $88.49 on June 22.
Spot gold was little changed, holding near a two-week
high of $1,624.70 an ounce at $1,616.05, having risen more than
4 percent since last Friday.
The gold market is likely to remain steady before the
release of U.S. monthly employment data on Friday, which may
encourage talk the Federal Reserve will join with its European
counterparts in taking additional policy easing measures.
The U.S. monthly jobs report is expected to show 90,000
workers were added to non-farm payrolls in June and the
unemployment rate held at 8.2 percent.