* Fed officials urge bank to begin stimulus withdrawal
* Dollar rises to near 10-month highs
* Bund future surges on talk ECB edging towards negative
* European shares recover as investors buy the dips
* Copper up for 2nd day after China data
By David Brett
LONDON, May 17 European shares lifted off lows
on Friday while the dollar held near a 10-month high against a
basket of currencies as investors considered the prospect the
Federal Reserve might begin easing off on asset buying.
The German Bund future meanwhile rose sharply on what
traders said was market talk the European Central Bank had
checked some banks' preparedness for a potential cut in its
deposit rate to below zero.
European shares bounced off session lows of
1,239.55 and were flat at 1,245.78, holding near five-year highs
and on course for their fourth straight week of gains.
The dollar index rose 0.3 percent to 83.812, close to
this week's 10-month high of 84.094.
Early stock losses had been stoked by comments from San
Francisco Federal Reserve Bank President John Williams who said
on Thursday the Fed could begin easing its monetary stimulus in
the summer and end bond buying late this year.
The Fed's purchases of $85 billion a month in bonds have
helped trigger a global scramble for yield that has fuelled this
year's massive rally in stocks.
"Opportunity cost is very much in favour of equities, and
therefore when you have seen any weakness ... immediately you
have big programme trades buying," said Geoffroy Goenen, head of
thematic European equity management at Dexia Asset Management.
"Equities are the only play in town for investors and even
if the Fed becomes less accommodative after the summer, the
central banks will still be supportive and interest rates are
Thursday also saw calls from a trio of hawkish regional
Federal Reserve officials for the U.S. central bank to stop
buying mortgage-backed bonds.
The Bund future rose as much as 40 ticks to 145.71
on talk of a deposit rate cut into negative territory,
effectively meaning banks would have to pay to park cash
securely overnight at the ECB rather than lending it out.
"It is probably still the easiest of policy options (in
terms of) unconventional measures," one trader said.
"If we do get some sort of deterioration (in the euro zone
economy) I think it's likely we get negative rates and it's
giving Bunds a bit of a bid today."
The Bund future made its biggest gain in six weeks on
Thursday as weak U.S. economic data cast doubt on the strength
of the recovery there and kept pressure on the Fed to keep its
money-printing press running.
The data also knocked stocks and the dollar ahead of the Fed
officials' comments, and concerns about future demand growth
continued to limit gains in oil on Friday.
Brent crude edged above $104 a barrel, rebounding
from an early decline and on track for a small weekly gain.
Copper rose 0.8 percent supported by tentative
signs of better metals demand in top consumer China, but gains
were capped by a stronger dollar and persistent worries about
Chinese economic growth.
In Asia, MSCI's broadest index of Asia-Pacific shares outside
Japan fell 0.4 percent to 479.33.