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 Oil and gold eased back as U.S. and Iranian officials, in a rare
sign of rapprochement, discussed the crisis on the sidelines of a
nuclear conference in Vienna although they both ruled out military
cooperation to face down the Sunni militant onslaught that threatens
to break the country up.
"There is a growing sense that we could see a stalemate after the
U.S. signaled that it was ready to talk with Iran," said Jim Reid,
market strategist at Deutsche Bank.
The slightly more benign geopolitical backdrop allowed European
equities to take their cue from M&A speculation. Shares in British
pharmaceutical group Shire SHP.L led European bourses higher after
Reuters reported that it hired investment bank Citi C.N as an
adviser, expecting to receive takeover approaches following a wave
of deals in the healthcare sector.
"We've been buyers of Shire recently and on the back of this we'd
look to add to positions," said Manoj Ladwa, the head of trading at
TJM Partners.
Healthcare companies have seen a wave of merger and acquisition
speculation in the past two months, and Shire's stock has risen
nearly 30 percent since mid-April.
At 0845 GMT Europe's leading FTSEurofirst 300 index was up 0.4
percent at 1389 points.
Germany's DAX was up 0.8 percent at 9966 points, Britain's FTSE 100
was up 0.2 percent at 6765 points and France's CAC 40 was up 0.5
percent at 4533 points.
Brent crude oil futures fell 0.5 percent to $112.39 a barrel LCOc1,
pulling further back from last week's nine-month high, and gold also
fell 0.5 percent to $1,265 an ounce.
UK INFLATION FALLS
Investors' worries over Iraq, however, bubbled closely under the
surface, as the possibility of the country breaking up remains
distinct after militants from the Islamic State of Iraq and the
Levant seized a large swathe of northern Iraq.
This helped support traditional safe-haven government bonds like
U.S. Treasuries, with the 10-year yield at 2.59 percent US10YT=RR,
flat on the day and off last week's peak of 2.662 percent.
The immediate focus is on the Federal Reserve's monetary policy
statement on Wednesday, when the U.S. central bank is expected to
announce it will continue paring its bond purchase program.
In currencies, the Australian dollar fell 0.6 percent to $0.9344
after minutes of the Australian central bank's June 3 meeting were
more dovish than expected.
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Sterling retreated from Monday's five-year high above $1.70 after
British inflation fell to 1.5 percent in May, its lowest in over
four years, casting some doubt whether Bank of England policymakers
will raise interest rates this year.
The pound slipped 0.2 percent to $1.6950, while the euro was steady
against the dollar at $1.3573 and the greenback was up slightly
against the yen at 102.02 yen.
Elsewhere, emerging markets took stock of a 10 percent plunge in
Argentina's Merval stock market index .MERV on Monday after the U.S.
Supreme Court declined to hear the country's appeal over its battle
with hedge funds that refused to take part in its debt
restructurings.
The move risks sending Argentina into a fresh sovereign default.
President Christina Kirchner said in an address to the nation that
Argentina will honor all its restructured debts, but didn't say how.
Turkey's lira and South Africa's rand held firm against the dollar.
"Despite the negative country-specific emerging market headlines,
overall emerging market appetite remains fairly healthy," said
Deutsche Bank's Reid.
This was despite tension in Ukraine showing no sign of abating as
Russia cut off gas to Ukraine in a dispute over unpaid bills that
could disrupt supplies to the rest of Europe and set back hopes for
peace between the former Soviet neighbors.
(Reporting by Jamie McGeever, additional reporting by Francesco
Canepa in London)
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