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 Profit warnings from Germany's Lufthansa <LHAG.DE> and France's
Vallourec <VLLP.PA> dented investors' appetite for equities
following a sharp rally, with the FTSEurofirst 300 <.FTEU3> index of
top European shares losing 0.3 percent.
"Markets have risen a lot lately, so there's very little room for
disappointment," said Alexandre Baradez, chief market analyst at IG
France.
"The new ECB measures are positive, but it's going to take a while
before we see any impact on the real economy. Stocks seem to have
gotten ahead of themselves and are ripe for a correction."
The euro slipped across the board, with the dollar's yield advantage
over the single currency widening.
It fell 0.1 percent to $1.3536 <EUR=>, nearing a four-month low of
$1.3503 set last Thursday shortly after the ECB cut interest rates
to record lows and took its deposit rate into negative territory for
the first time.
The euro has also been under pressure against the dollar following
last week's U.S. monthly jobs data which showed U.S. employers
maintained a solid pace of hiring in May.
The single currency also hit a seven-month trough on the
higher-yielding Australian dollar <EURAUD=R> and to near its lowest
against the pound since late 2007 <EURGBP=R>.
Investors looked to borrow euros at super-low rates and buy
higher-yielding assets abroad, the so-called carry trade.
"The chase for yield looks like it has further to run," said Shane
Oliver, head of investment strategy at AMP Capital.
"The ECB's actions provide a reminder global monetary conditions
remain very easy, which is supportive of relatively high yield
assets and growth assets generally."
On the fixed income front, yields on the euro zone's lower rated
bonds rose, as upcoming debt auctions prompted investors to book
profits after a fall to record lows triggered by the ECB's measures.
Spanish <ES10YT=TWEB> and Italian <IT10YT=TWEB> yields were 3 basis
points higher at 2.66 percent and 2.82 percent, respectively.
Portuguese yields <PT10YT=TWEB> rose 2 bps to 3.39 percent before
Lisbon's first debt auction since the end of its bailout programme
in May.
Portugal will offer up to 750 million euros in 10-year bonds, while
Italy plans to sell up to 8.5 billion euros of three-, seven- and
30-year bonds on Thursday.
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German Bund futures <FGBLc1> were 34 ticks lower, at 144.89.
NIKKEI BUCKS TREND
Asian stocks dipped from recent peaks, while Japan's Nikkei <.N225>
bucked the trend, gaining 0.5 percent after MSCI's decision to
remove South Korea and Taiwan indexes from its review list for
reclassification to developed markets, keeping them in the emerging
markets classification.
There had been speculation Tokyo equities would take the brunt of
rebalancing if Korean and Taiwanese shares were reclassified to
developed markets.
Brent futures <LCOc1> added 24 cents to $109.76 a barrel, lifted by
expectations that a drop in U.S. gasoline stockpiles pointed to a
healthy outlook for demand.
The market was also watching the unfolding crisis in Iraq, where an
al Qaeda splinter group seized control of the city of Mosul. The
United States said it would support a strong, coordinated response
to the aggression, while Oil Minister Abdul Kareem Luaibi aimed to
assure markets that any state of emergency would not impact oil
exports.
Gold <XAU=> added $1.01, to $1,261.50 an ounce, off a four-month low
of $1,240.61 hit last week, while zinc in London and Shanghai hit
the highest in around 15 months as improving demand met tight
supply, and copper premiums fell further in China as traders faced
tougher financing conditions in the wake of a fraud investigation.
(Additional reporting by Wayne Cole in Sydney; Editing by Alison
Williams)
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