| LONDON, April 3
LONDON, April 3 Slightly slower growth in euro
zone business activity last month and caution ahead of
Thursday's European Central Bank policy decision halted this
week's European stock market rally in its tracks.
Investor appetite for risk did show up in some areas,
however, with long-term Greek government borrowing costs falling
below 6 percent for the first time in four years ahead of the
country's expected return to the bond market later this month.
Signs of a post-winter improvement in the U.S. economy,
expectations Beijing will take steps to boost the Chinese
economy and a reduction in emerging market volatility had lifted
global stocks and core government bond yields this week.
On Wednesday the S&P 500 hit a record high and Asian
stocks a four-month peak, while benchmark U.S. 10-year Treasury
yields hit a one-month high and Greek 10-year yields
posted their biggest one-day fall in two months.
The global focus on Thursday switched to Europe. Purchasing
managers index data showed that growth in euro zone business
activity slowed in March but was solid over the quarter.
Seventy of 72 economists polled by Reuters expect the ECB to
keep interest rates on hold at a record low 0.25 percent. But
with inflation at a four-year low of 0.5 percent, the door is
open to further easing, if not today then in the coming months.
"Risk assets in Europe are broadly flat. The main news in
Europe was the PMI reports (and) the final euro area indices for
March were a tad lower than expected," said Barclays economists
in a note to clients.
"Market attention will now shift to the ECB policy decision
and press conference. While we do not expect a policy change
today, the risks are finely balanced," they said.
At 1110 GMT all of Europe's major indices were flat on the
day. The FTSE Eurofirst 300 index of leading European shares was
at 1,343 points, Britain's FTSE 100 index was
at 6,658 points, Germany's DAX was trading at 9620
points and France's CAC 40 was at 4431 points.
DRAGHI DISAPPOINTMENT DANGER
Overnight, MSCI's broadest index of Asia-Pacific shares
outside Japan added 0.1 percent, brushing a new
four-month high, and Japan's Nikkei jumped 1.2 percent
to a three-week peak after China cut taxes for small firms and
updated infrastructure spending plans.
In bond markets 10-year German government bond yields inched
up a basis point to 1.63 percent and Greek yields
slipped to a fresh four-year low of 6.16 percent.
Greece lined up a group of banks on Thursday to manage its
first new bond sale since the country restructured its debt two
years ago. The transaction, expected later this month, will mark
one of the fastest-ever comebacks for a defaulted sovereign.
France and Spain sold a combined 13.1 billion euros of bonds
on Thursday in auctions that drew strong demand from investors.
In currencies, the yen remained on the back foot as its
safe-haven appeal continued to fade. The dollar traded at 103.95
yen, after briefly touching a 10-week high of 104.075.
The euro slipped 0.1 percent to $1.3753 against the
dollar, as traders bet on an outside chance the ECB will act.
"The danger of at least minor disappointment today is real,
though Mr. Draghi's press conference will doubtless leave the
door open to further easing should deflationary pressures grow,"
SocGen analysts said, referring to ECB president Mario Draghi.
Sterling slid 0.2 percent to $1.6590 as a fall in UK
service sector growth to an eight-month low in March offset
earlier remarks from Bank of England governor Mark Carney that
interest rates could rise before May next year.
Beyond the ECB meeting investors will be looking to U.S.
employment data for March on Friday. Private-sector jobs and
factory orders data on Wednesday strengthened expectations of
another solid report.
In commodities markets, gold fell 0.5 percent to
$1,283 an ounce, three-month copper on the London Metal Exchange
was down 0.75 percent at $6,625.00 a tonne, and Brent
oil was flat at $104.77 a barrel.
(Reporting by Jamie McGeever; Editing by Toby Chopra)