* Dollar index steady, just off highest since mid-Sept
* Growth concerns weigh on European markets
* Fed says in no rush to raise rates but upgrades view on
* Madrid shares hit after Argentina defaults again
By Patrick Graham
LONDON, July 31 Doubts about the health of
Europe's economy dominated trade on its major stock markets on
Thursday after a cautious message from the U.S. Federal Reserve
did little to stem the dollar's charge to 10-month highs.
A steady rise for the U.S. currency is the central story for
global financial markets so far this month and a jump in U.S.
economic growth reported on Wednesday extended the dollar's
gains against the euro to 6 cents since early May.
U.S. growth of 4 percent in annualised terms in the second
quarter came at a time when poor company results and concerns
over a still escalating situation in Ukraine have added to
worries that Europe will take far longer to recover.
Euro zone inflation numbers on Thursday are expected to add
to those doubts, and the pan-European FTSEurofirst 300 index
was 0.2 percent lower in a choppy opening.
"Despite some decent earnings from a number of blue-chips,
the market is stuck in a range, with a number of negative
catalysts including Argentina's default at the forefront of
investors' minds," said Lionel Jardin, head of institutional
sales at Assya Capital, in Paris.
The euro was holding steady just below $1.34 after a rough
ride this week that has seen it fall to its lowest since
Currency traders said the inflation numbers - expected to
show annual price growth of just 0.5 percent in the bloc - might
provide the fuel for more sales but that any move might be
capped ahead of another round of major U.S. figures on Friday.
"Meagre inflation readings will underline the case for loose
monetary policy for a very extended period of time," analysts
from Dutch bank ING said in a morning note. "This would add to
the negative sentiment behind the euro but given the scale of
softness this week already, downside may be only modest."
London's FTSE was the only major European market to buck the
trend, with the oil and gas sector lifted by rising profits that
included a 33 percent improvement for Royal Dutch Shell, the
index's biggest stock.
While the prospect of a solid U.S. recovery gave equities
some general support, many Asian shares slipped on profit-taking
after making hefty gains since the middle of this month.
MSCI's broadest index of Asia-Pacific shares outside Japan
dipped 0.3 percent but was still not far from a 6 1/2-year high
hit on Wednesday.
The Nikkei average rose 0.3 percent while Australian
shares inched up to six-year highs.
Argentina defaulted for the second time in 12 years
overnight after hopes for a last minute deal with holdout
creditors were dashed.
Traders said that helped fuel weakness in Spanish shares,
with Madrid's main index down 1.3 percent.
But the broader global impact of any default is likely to be
limited because Argentina has been effectively shut out of
financial markets since its 2002 default.
(editing by John Stonestreet)