Europe shares set for worst week of 2015

[June 05, 2015]  By Lionel Laurent

LONDON (Reuters) - European shares extended losses on Friday, on track for their worst week of the year as a losing streak for bonds rumbled on, with wary investors anticipating more Greek debt drama and a solid U.S. payrolls reading.

The pan-European FTSEurofirst 300 index was down 1.2 percent by 1057 GMT as euro zone bond yields rose, especially on the bloc's periphery, while the euro consolidated this week's hefty gains.

Shares in Asia and emerging markets also fell, though China was again a notable outlier. Shanghai stocks were up more than 1 percent, clearing the 5,000-point barrier for the first time since early 2008.

Mixed economic signals after years of plentiful central bank cash have added an extra layer of tension to markets already on edge over the possibility of a Greek default.

Investors dumped Greek bonds and stocks after Athens delayed repayment of an International Monetary Fund loan and a deputy minister said the government might call snap elections if international creditors do not soften their terms.

"Markets in Europe have perhaps woken up to a less favourable environment in terms of the negotiation for Greece and bond yields," said Jefferies strategist Sean Darby, though he said global equities had still seen inflows on the week.

U.S. equity futures <SPc1> were down 0.3 percent ahead of key employment data due at 1230 GMT. Median forecasts in a Reuters poll are for a solid rise of 225,000 in non-farm payrolls with the jobless rate steady at 5.4 percent.

But with the IMF having downgraded its outlook for the U.S. economy and taken the unusual step of warning against an interest rate rise before 2016, markets see only a one-in-three chance of a lift-off in the Federal funds rate by September. A move is not fully priced in until December.

Gold prices took their cue from U.S. rate expectations, hovering near their lowest level in five weeks. London copper also fell to a six-week low and was set to rack up its third straight weekly loss.

Oil markets fell ahead of an OPEC meeting at which the producer group is expected to stick to its policy of unconstrained output for another six months, keeping the market oversupplied. Front-month Brent futures were trading at $61.73 per barrel at 0720 GMT on Friday, down 30 cents. U.S. crude futures were down 39 cents at $57.61.

Turkish investors were wary of taking new positions ahead of a weekend parliamentary election that is expected to be the closest in a decade and which could see the ruling AK Party of President Tayip Erdogan lose its majority.

(Reporting by Lionel Laurent; editing by John Stonestreet)

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