* European shares fall, euro at year's high
* Euro zone inflation steady
* China yuan, Ukraine politics in the mix
* Focus turns to U.S. GDP data
By Jamie McGeever
LONDON, Feb 28 European stocks fell on Friday
and the euro rose to its highest level this year after euro zone
inflation unexpectedly held steady this month, cooling growing
expectations the European Central Bank might ease monetary
policy as early as next week.
The "flash" estimate of annual consumer price inflation in
February was 0.8 percent. Economists had forecast it would slip
closer to deflationary territory, at 0.7 percent.
That followed the biggest weekly fall in China's currency
for two decades and came ahead of the first estimate later in
the day of U.S. economic growth in the fourth quarter of last
Investors also kept close tabs on Ukraine, where the central
bank capped bank withdrawals and banned trading of certain
currency contracts, as the acting President dismissed the army
chief of staff and Russian helicopters were dispatched to
Diminishing prospects of an interest rate cut by the ECB as
early as next week was the biggest driver, though. Banking
stocks fell, the euro climbed above $1.38 and government bond
yields rose from their lows earlier in the session.
"There could be some disappointment on the basis that the
ECB could step back from any action that it could have been
considering next week to see how things pan out," said Keith
Bowman, equity analyst at Hargreaves Lansdown. "There are still
a lot of nerves in the background, particularly with regard to
the geopolitical situation."
At 1250 GMT the FTSEurofirst 300 index was down 0.4
percent at 1,340.30 points, having traded in positive territory
until the inflation data release. The index is on track for a
gain of almost 4 percent in February.
In Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan rose a slender 0.1 percent for a 4
percent gain on the month. Tokyo's Nikkei stock average
skidded 0.5 percent.
The euro was 0.7 percent higher on the day at $1.3805
, rising above $1.38 for the first time this year. The
dollar pared its losses against the Japanese yen to 101.90 yen
CHINA AND UKRAINE
Earlier in the day, China's yuan posted its
biggest weekly loss since China introduced its own foreign
exchange market in 1994, as the central bank ramped up its
intervention to weaken the currency ahead of a key government
"The PBOC (People's Bank of China) actions have triggered a
response that we suspect is not wholly undesired by officials,
which is unwinding of some of the highly speculative and
leveraged plays," wrote Brown Brothers Harriman in a note on
Yet another day of fast-moving and dramatic events in
Ukraine encouraged stock market investors to play defensively.
Armed men stormed the regional parliament and seized the
airport in region, which is mainly ethnic Russian. Ukraine's
acting president dismissed the head of the armed forces general
staff, meanwhile, and the central bank imposed caps on the
withdrawal of foreign currency from the country's banks.
The central bank also banned non-deliverable forward
contracts for foreign currencies as part of measures it
announced on Friday to shore up the hryvnia currency, which then
recovered from the previous day's record low.
The unrest initially prompted investors to seek the safety
of U.S. Treasuries, pushing yields to more than three-week lows
in Asia of 2.638 percent. That rose to 2.67 percent
after the euro zone inflation data, however.
Investors are now looking to U.S. gross domestic product
figures at 1330 GMT, which are expected to show that growth
slowed in the final three months of last year to an annual rate
of 2.5 percent from 3.2 percent.
(Reporting by Jamie McGeever, additional reporting by Atul
Prakash in London.)