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Growth fears eclipse U.S. earnings; Fed, Draghi eyed

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[July 09, 2014]  By Jamie McGeever

LONDON (Reuters) - World stocks fell on Wednesday as cooling Chinese inflation overnight added to weak European industrial data earlier in the week, pointing to slowing global growth and eclipsing a positive start to the U.S. earnings season.

Miner Alcoa Inc AA.N reported results after Wall Street closed that beat analysts' expectations, but that was not enough to help European equities recover after posting their biggest fall in three months on Tuesday.

Major currencies and bond markets were steady ahead of two potentially major monetary policy events later in the day. The U.S. Federal Reserve will release minutes of its latest policy meeting and European Central Bank President Mario Draghi is scheduled to speak.

"You tend to get an up move after a good sell-off, but I'd still be selling any strength on the stock markets for now," said Darren Courtney-Cook, head of trading at Central Markets Investment Management.

The FTSEuroFirst 300 index of leading European shares was down 0.1 percent at 1,362 points .FTEU3 in early trade, while Germany's DAX and France's CAC 40 were both flat at 9,779 points .GDAXI and 4,345 points .FCHI, respectively.

Britain's FTSE 100 was down a quarter of one percent at 6,721 points .FTSE, dragged lower by the insurance sector. Admiral Group fell 6 percent .ADML.L after issuing a trading statement update, and Aviva was down 3 percent AV.L.
 


Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.7 percent, touching its lowest point in a week and pulling away from last week's three-year highs. Japan's Nikkei stock average .N225 ended down 0.1 percent.

Overnight, China's consumer price index rose 2.3 percent in June from a year earlier, shy of the consensus forecast of 2.4 percent, and a sign economic activity may be cooling.

"The weaker CPI reading ... provides further room for policy easing in the future on the one hand, and also signals the weak demand from the domestic economy on the other hand," said Wang Jun, an economist at the China Centre for International Economic Exchanges in Beijing.

DRAGHI RETURNS TO LONDON

In currency markets, China guided its yuan towards a three-month high against the dollar in what traders said was possibly a political move as China and the United States started their annual Strategic and Economic Dialogue.

The euro and sterling were unchanged at $1.3615 EUR= and $1.7121 GBP=, respectively, while the dollar inched up against the yen to 101.60 yen JPY=.

The dollar has this week fallen back below a key long-term technical level against the yen. That's the 200-day moving average, which on Wednesday was 101.83 yen, suggesting it may not strengthen much - if at all - in the coming days and weeks.

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Major bond markets were steady ahead of the Fed minutes and Draghi's speech in London, where he delivered his famous speech almost exactly two years ago pledging to do "whatever it takes" to save the euro.

The benchmark 10-year Treasury yield US10YT=RR stood at 2.575 percent in early European trade, up one basis point from the U.S. close of 2.565 percent.

Upbeat June U.S. employment data last week has prompted some Wall Street economists to predict the Fed will raise interest rates earlier than previously thought. But yields have fallen since then, with investors cautious about the strength of the recovery.

Downbeat German economic data on Tuesday kept the benchmark Bund yield anchored, and in early trade on Wednesday it touched its lowest in a year at 1.218 percent EU10YT=RR.

Draghi takes the stage later in the day, and investors will be looking for signs the ECB could take further easing steps to support the euro zone economy.

In commodities trading, Brent oil LCOc1 fell 0.4 percent to $108.53 per barrel. It has lost 3.5 percent so far this month.

Gold XAU= rose 0.4 percent on the day to $1,324.00 an ounce as markets waited for the Fed minutes.

(Reporting by Jamie McGeever, additional reporting by Sudip Kar-Gupta in London and Aileen Wang in Beijing, editing by John Stonestreet)

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