Unease over Fed rate path dents European stocks

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[January 28, 2016]  By Sudip Kar-Gupta

LONDON (Reuters) - Anxiety over the future path of U.S. interest rates pushed European stocks lower on Thursday, while the resignation of Japan's economy minister filtered through currency markets.

U.S stock index futures were largely unchanged on Thursday, but the fact that the U.S. Federal Reserve had given little indication of slowing down the pace of future interest rate hikes was enough to unnerve some investors. [.N]

While money markets pushed back expectations of when the Fed would next raise rates, equity markets had bet on a stronger signal in this regard from the central bank.

The FTSEurofirst 300 <.FTEU3> index of top European shares fell 1.4 percent, with European stock markets receiving a further blow from some weak earnings from blue-chip companies such as Roche <ROG.VX>. [.EU]

The Fed kept interest rates unchanged on Wednesday and said it was "closely monitoring" global economic and financial developments, signaling it had accounted for a stock market sell-off but was not ready to abandon a plan to tighten monetary policy this year.

"There is a risk that there may be a U.S. recession, but I think those fears are overdone. Nevertheless, it's possible we will reduce our equity allocation in the short-term, given that the volatility in financial markets is likely to remain," said Francois Savary, chief investment officer at Geneva-based Prime Partners.

The MSCI All-Country World index fell 0.2 percent, while the MSCI Emerging Market index advanced 0.6 percent.

On currency markets, the yen got a brief boost from the resignation of Japan's Economy Minister Akira Amari following a row over allegations he received bribes from a construction company.

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However, a stabilization in oil prices - which have been hit by concerns about a slowdown in China and an oversupply in the oil markets - lifted commodity-linked major currencies including the Australian and New Zealand dollars. [FRX] [O/R]

Worries over China, the world's second-biggest economy and a major consumer of oil and metals, have hit world stock markets this year and impacted oil and metals prices.

China's volatile shares tumbled again on Thursday and some traders said oil prices would remain under pressure.

"We remain slightly skeptical of further increases with the current weak fundamentals," said Daniel Ang at Phillip Futures, commenting on the oil price.

(Additional reporting by Danilo Masoni in Milan, Patrick Graham in London and Meeyoung Cho in Seoul; Editing by Gareth Jones)

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