* Stocks lower on reports of German bank fines
* ECB Lautenschlaeger says QE a last resort
* Wall Street set to open lower ahead of earnings
* UK output dips unexpectedly, sterling falls
(Updates prices, adds US indicators)
By John Geddie
LONDON, July 8 Europe's main stock indices and
lower-rated government bonds slipped on Tuesday amid reports of
new U.S. fines for banks and dimming prospects the European
Central Bank will launch an asset- purchase programme.
Wall Street was expected to start down 0.1 percent, as
investors continued to hold off from making big bets going into
a corporate earnings season that kicks off with Alcoa after
European equity indexes fell for a third consecutive day
after reports that Germany's largest lenders were negotiating a
settlement with U.S. authorities over their dealings with
countries blacklisted by Washington. The talks follow a huge
fine for French lender BNP Paribas.
"These fines add to an existing uncertainty in the banking
sector," said Berenberg's senior economist, Christian Schulz,
pointing out that the balance sheets of the region's banks are
currently under review by the ECB.
At 0945 GMT, the pan-European FTSEurofirst 300 index
was down 0.5 percent at 1,380.33. Germany's Dax
and France's CAC were also down 0.5 percent,
while weaker than expected UK factory output data dragged the
FTSE 100 down 0.6 percent.
Shares in German lender Commerzbank fell 4 percent
as the New York Times reported it could pay at least $500
million in penalties. Its larger competitor Deutsche Bank
saw its shares slip 1.3 percent.
The ECB has made unprecedented policy moves in recent months
to stimulate bank lending and revive the euro zone economy.
But late on Monday ECB Executive Board member Sabine
Lautenschlaeger showed the strength of opposition in some
quarters to a programme of asset purchases, which she said
should be a last resort.
Many economists say such a programme, known as quantitative
easing, might not prove as effective as it has in the United
States because Europe relies on traditional forms of bank
lending more than capital markets. ECB chief Mario Draghi has
also said that might be the case.
Berenberg's Schulz said he felt QE should only be used to
fight a future sovereign debt crisis stemming from the bloc's
fragile states. It was these lower-rated sovereign bonds that
struggled on Tuesday, with traders citing Lautenschlaeger's
Yields on 10-year Greek, Portuguese, Spanish, Italian and
Irish bonds edged up between 1-7 basis points, although they
remain near record lows.
In currency markets, the big mover was sterling, which fell
against the dollar after an unexpected dip in British factory
and industrial output, although strategists said the data was
unlikely to curb the pound's strength for long.
"Taken as a whole, the UK data still points at quite a
resilient, robust recovery," said Valentin Marinov, a currency
strategist at Citigroup.
The dollar was largely unchanged against a basket of other
major currencies, just nudging into a sixth straight day of
gains, as markets waited for minutes on Wednesday of the Federal
Reserve's last meeting, which will be scoured for hints on when
its policy committee might consider raising interest rates.
Asia was quiet overnight, with the region's stocks tracking
sideways as the earnings season kicked off with disappointing
guidance from regional tech heavyweight Samsung.
MSCI's broadest index of Asia-Pacific shares outside Japan
was flat, having earlier touched a three-year
high of 502.27 during the session.
The U.S. earnings season starts with Alcoa later on
Tuesday and dozens of major companies are scheduled to report
next week, including numerous Dow components.
Profits are forecast to grow 6.2 percent for the quarter,
according Reuters data, but investors see a chance of a return
to double-digit growth for the first time in nearly three years.
In commodity markets, gold reversed earlier losses, edging
up to $1,323.45 an ounce, having held to a relatively
tight $1,305.90 to $1,332.10 range for the past two weeks.
Oil prices extended their recent decline as events in Iraq
and Ukraine have so far not led to any serious disruption in
flows. Brent LCOc1 dipped 62 cents to $109.62 a barrel and U.S.
oil lost 11 cents to $103.42 a barrel.
(Editing by Larry King)