(Corrects name of strategist in 5th paragraph.)
* Shares, periphery's bonds see broadly steady start
* Euro remains under pressure on bets ECB will ease
* Investors warily eye Thailand martial law declaration
* Aussie dollar falls on mining, China uncertainty
By Marc Jones
LONDON, May 20 European shares and peripheral
bonds buckled for a second day running on Tuesday, as political
angst outset optimism over fresh support from the ECB.
The premiums demanded by investors to hold Spanish, Italian
and Portuguese bonds rather than German Bunds rose to two-month
highs amid growing nervousness about this week's European Union
Coupled with recent disappointing growth data, the worry is
that strong showings by Eurosceptic parties from Greece to
France could derail domestic reforms.
Shares across the region faltered after a broadly
solid start. The main bourses in London, Frankfurt
and Paris dropped 0.5, 0.3 and 0.5 percent
respectively. U.S. stock futures pointed to a lower start
for Wall Street.
The upcoming elections will be the first time since the euro
zone debt crisis began that the European electorate will get a
chance to voice its opinion, said Kerryy Craig, a global markets
strategist at J.P. Morgan Asset Management.
"The polls are suggesting that 25 to 30 percent of seats
could go to the Eurosceptic parties ... that shows that a lot of
people aren't really happy with the way things are going," he
said. But that "may actually force the more centre right and
centre left parties to work more closely and not have the feared
big impact on the policy direction at the European level."
The euro was back under $1.37, after two weeks of hints the
ECB will loosen policy, which have undermined bets the single
currency would top $1.40.
A trio of ECB policymakers - Finland's Erkki Liikanen,
Austria's Ewald Nowotny and Spain's Luis Linde - are all due to
speak later. Analysts will be hoping for further clues on the
decisions likely to be made at its meeting at the start of June.
"Largely baked into the (market) prices are a refi rate cut
and a negative deposit rate and perhaps something additional
like a targeted LTRO," said J.P. Morgan AM's Craig. "But the
chance of anything firm in terms of asset purchases is low and
markets had maybe been pricing a little bit of that in."
Nervousness had also washed in from Asia, where Thailand
declared martial law overnight after months of unrest
and the Australian dollar dropped on
uncertainty about its biggest industry, mining.
Thailand's baht initially fell against the dollar,
then steadied as dealers suspected the Thai central bank had
intervened. Bangkok's SET index also
pared back some of its early losses to end down 0.8 percent.
The declaration of martial law was intended to restore peace
and order and does not constitute a coup, deputy army spokesman
Colonel Winthai Suvari told Reuters.
Fitch Ratings said the move was not in itself negative.
"It may even help to break Thailand out of the political
deadlock of the past six months, by which the two sides have
failed to agree on arrangements for new elections," said Andrew
Colquhoun, its head of Asia-Pacific Sovereigns.
MSCI's broadest index of Asia-Pacific shares outside Japan
slipped about 0.3 percent. But Japan's benchmark
Nikkei stock average bucked the downtrend and tracked
overnight gains on Wall Street.
BOJ ON DECK
The Australian dollar was the main mover on major currency
markets on Tuesday, falling more than half a percent after a
decline in the price of iron ore, one of the country's biggest
In the UK, high-flying sterling rose to a 16-month peak
against the euro after a report showed British inflation rose
more than expected in April. That also helped to widen the gap
in yields between UK and euro zone government bonds.
"The data fuels expectations for an early rate hike from the
Bank of England, this despite the dovish tone of the Inflation
Report last week," said Alex Edwards, head of corporate desk at
The dollar was slightly lower against the yen after
dropping to its lowest in more than three months overnight. It
last bought 101.32 yen, down about 0.2 percent on the
The BoJ is set to conclude its latest two-day policy meeting
on Wednesday. Governor Haruhiko Kuroda has maintained an
optimistic view of the Japanese economy, keeping expectations of
further policy easing at bay.
In commodities trading, U.S. crude rose slightly, to
$102.77 per barrel, after the weaker dollar lifted it close to a
one-month high in the previous session. Spot gold was
steady at $1,292.04 an ounce.
(Additional reporting by Marius Zaharia and John Geddie in
London; Editing by Larry King)