* European stocks down, euro gains respite after inflation
* Data seen cementing case for ECB to ease policy
* Asian shares rise as U.S., China activity picks up
* Wall Street seen opening lower
(Updates with fresh quotes, prices)
By Nigel Stephenson
LONDON, June 3 European shares dipped on Tuesday
and the euro edged higher against the dollar after a fall in
euro zone inflation cemented the case for the European Central
Bank to ease monetary policy later this week.
The pan-European FTSE Eurofirst 300 equity index
was down 0.5 percent at 1130 GMT, extending losses after data
that showed annual consumer price inflation unexpectedly slowed
to 0.5 percent in May.
Traders said expectations the ECB, which targets inflation
of close to 2 percent, would cut interest rates on Thursday were
already largely priced in and that only a weaker inflation
number would have triggered a big market move.
The euro gained some respite on relief that price growth had
not slowed even further, while German government bond futures
"The inflation reading could have been much worse, but it
nonetheless underpins the necessity for the ECB to act on
Thursday," said Jeremy Stretch, head of currency strategy at
CIBC World Markets.
Wall Street also looked set to open lower. S&P 500 index
futures were down 0.2 percent
Expectations of lower euro zone rates, and recent upbeat
U.S. economic data, have combined to push the euro to its
weakest against the dollar since mid-February.
However, the single currency was up 0.1 percent at
$1.3610, having fallen as low as $1.3587 immediately after the
data, but still not far from a low of $1.3586 hit last week.
"A (ECB) refinance rate cut by 15 basis points and a
negative deposit rate cut by 10 basis points is baked in. The
risk is of a more aggressive cut in the deposit rate which has
the potential to take the euro down below the $1.3585 level that
has proved sticky in the past few sessions," Stretch said.
The dollar index, which measures the greenback
against a basket of currencies, edged down but was close to
Monday's four-month high.
The dollar stood at 102.40 yen, having earlier hit 102.49,
its strongest in more than a month.
German 10-year government bond yields, which
hit 12-month lows last week, rose 5 basis points to 1.36
percent. Bund futures declined. Some traders said the
weak inflation data was already priced into the market and
prompted investors to book profits after a recent rally.
"It's clearly a call for the ECB to take action but a lot of
it is priced in already and there's a reluctance to take
aggressive positions before the meeting. It (the ECB) will need
to exceed expectations to drive yields lower" said Jan von
Gerich, chief fixed income analyst at Nordea.
U.S. 10-year Treasury yields rose on Monday to
2.54 percent after the Institute of Supply Management showed
U.S. manufacturing activity accelerated in May. The ISM data
helped push U.S. stocks higher, with the Dow Jones average
and S&P 500 index closing at record highs.
The U.S. numbers and Chinese data showing factory and
service-sector performance had their best showings in months in
May helped push Asian shares higher on Tuesday.
Japan's Nikkei hit a two-month high, further boosted
by talk of public pension funds increasing their assets
allocated to domestic shares. MSCI's broadest index of
Asia-Pacific shares outside Japan rose 0.4
percent, nearing a one-year high hit last week.
Emerging markets stayed broadly rangebound. Emerging dollar
bond spreads versus Treasuries stood at 288 basis points
, their tightest in 15 months. Emerging stocks rose 0.4
percent, just off recent 6-1/2 month highs
Gold snapped a five-day losing streak as shares fell,
edging up 0.1 percent to $1.245.50 an ounce, but was still near
a four-month low.
Brent crude slipped towards $108 a barrel,
reflecting weak European demand, although the Chinese data kept
a floor under prices.
(Additiional reporting by Jamie McGeever, Sujata Rao and Sudip
Kar-Gupta in London, Hideyuki Sano in Tokyo; Editing by Robin