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 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.
European shares dipped after French oil major Total <TOTF.PA> 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 neighboring Ukraine.
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 fell 0.3 percent in July from a year
before.
The surprisingly big fall came even though figures released at the
same time showed Spanish economic growth hit its fastest since
before the financial crisis in the second quarter.
Traders said that if German inflation data, due at 1200 GMT, also
came in below forecast, it would intensify pressure on the ECB to
print money to support growth and avert 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 program 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.
DIVERGING FORTUNES
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 80.225, after touching
81.245 on Tuesday as the euro cratered.
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.
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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.
"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.
RUSSIAN SANCTIONS
European shares bucked the upward trend in Asian markets. French oil
major Total slid after saying it had stopped buying shares in
Russia's Novatek on the day a Malaysia Airlines flight was downed
over Ukraine.
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 down 0.2
percent at 1,370.92 points, after gaining 0.3 percent on Tuesday.
Asian shares touched a six-and-half-year peak, with Japan's Nikkei
stock average ending up 0.2 percent, as upbeat earnings offset
weaker-than-expected industrial production data which cast doubts
over the strength of an expected third-quarter economic recovery.
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)
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