* Weak inflation lifts bets on further ECB policy easing
* European shares slip as Total hurt by Russia
* MSCI Asia erases losses, climbs to 6-1/2 year high
* Fed statement could hint at improving U.S. labour market
* U.S. GDP report expected to show economy rebounded
By Emelia Sithole-Matarise
LONDON, July 30 The euro hit an eight-month
trough against the dollar on Wednesday and German bond yields
were near record lows ahead of inflation data expected to boost
the case for further policy easing by the European Central Bank.
Investors were also awaiting a statement from the Federal
Reserve following its policy meeting that some expect to signal
a more hawkish policy outlook, and data likely to show the U.S.
economy bouncing back strongly in the second quarter.
U.S. stocks were set to open slightly higher while European
shares were flat as leading cement makers took a hit after
The euro fell to $1.3395, its lowest since November 2013,
before recovering to $1.3400, down around 0.1 percent on the day
after data showing Spanish consumer prices surprisingly
fell 0.3 percent in July from a year before.
Figures released at the same time showed that, in the three
months to June, Spanish economic growth hit its fastest since
before the financial crisis.
In Germany, an initial batch of regional price data showed
inflation falling well below 1 percent even in the euro zone's
Traders said that if federal German inflation data, due at
1200 GMT, also came in below forecasts, it would intensify
pressure on the ECB to print money to support growth and avert
broader deflation risks.
The ECB cut all its interest rates in June and promised up
to 1 trillion euros in cheap long-term loans to banks from
September, but kept the door open to a programme of large-scale
asset purchases, known as quantitative easing (QE).
"The likelihood that the ECB will need to do QE at the end
of the year is sharply increasing," said Alessandro Giansanti,
senior rate strategist at ING.
The contrast between the moribund euro zone economy and an
increasingly robust U.S. recovery is one factor in the dollar's
rise this week to a six-month high against a basket of six major
currencies. The dollar index was last at 81.31.
The Commerce Department is expected to report on Wednesday
that the economy grew at a 3.2 percent annual pace in the second
quarter, after it shrank 2.9 percent in the previous quarter.
Federal Reserve chair Janet Yellen is not due to hold a news
conference after the U.S. central bank's two-day meeting, and
the Fed will not update its economic forecasts, leaving a
statement scheduled for release at 1800 GMT as investors' focus.
On Friday, the Labor Department's key nonfarm payrolls
report is expected to show a rise of 231,000 jobs in July after
an increase of 288,000 in June. The jobless rate is expected to
hold steady at 6.1 percent.
With U.S. unemployment dropping over the last few months and
inflation firming, some believe the Fed could adjust its wording
to suggest a willingness to hike interest rates sooner rather
than later as the bank approaches its "full employment" mandate.
The yield on the benchmark 10-year U.S. Treasury note
stood at 2.467 percent, not far from its U.S. close
of 2.462 percent on Tuesday, when it got support from German,
Italian and Spanish government debt yields hitting record lows.
German 10-year bond yields, the benchmark for
euro zone borrowing costs, were flat at 1.12 percent, having hit
an all-time low of 1.11 percent on Tuesday.
"That widening yield spread differential is beginning to
weigh more heavily on the euro," said Lee Hardman, a currency
economist at the Bank of Tokyo-Mitsubishi UFJ.
European shares made little headway as Swiss cement maker
Holcim and German rival HeidelbergCement
fell after reporting disappointing results, blaming weak
French oil major Total was hit by concerns over
its investments in Russia following Tuesday's tightening of
European sanctions on Moscow after the downing of an airliner in
Last April, Total forecast that Russia would become its
biggest source of oil and gas output by 2020 thanks to its
partnership with Novatek and their Yamal LNG project in Siberia.
Tuesday brought further European and U.S. sanctions against
Russia over Moscow's support for rebels in eastern Ukraine.
The FTSEurofirst 300 index of top European shares
was flat at 1,373.38 points, after trading slightly lower
earlier in the day.
U.S. crude edged up around 0.1 percent on the day to
$101.07 a barrel after touching an intraday low of $100.37 on
Tuesday, its lowest since mid-July.
Spot gold was steady at $1,299 an ounce after
slipping 0.5 percent and breaking below the key $1,300 level in
the previous session.
(Additional reporting by Marius Zaharia and Jemima Kelly;
Editing by Catherine Evans and John Stonestreet)