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 Euro zone finance ministers meet later in the day, but expectations
are low that Greece and its international creditors will reach a
deal to prevent the cash-strapped country from defaulting at the end
of the month.
Earlier in Europe, Norway's central bank became the 29th monetary
authority to ease policy this year by cutting interest rates to a
record low, and sterling hit a seven-year high after UK retail sales
boosted expectations UK rates might soon rise.
The main drivers for European markets, however, will be the news out
of the Eurogroup finance ministers meeting in Luxembourg and the
outlook for U.S. monetary policy.
"Markets are starting to sit up and pay attention to the fact that a
resolution will not be forthcoming anytime soon for Greece," said
Brenda Kelly, head analyst at London Capital Group.
European stock markets were all lower.
The FTSEuroFirst 300 index of leading European shares was down 0.5
percent at 1,514 points, Germany's DAX down 0.4 percent at 10,934
points, France's CAC down 0.6 percent at 4,762 points and Britain's
FTSE 100 down just 0.1 percent at 6,675 points.
Greece's benchmark stock index hit a three-year low of 651 points,
and has lost almost 20 percent in the last week.
"With Greece, no news is bad news at this stage," said Holger
Schmieding, chief economist at Berenberg Bank in London.
Overnight in Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan inched up 0.1 percent, while Japan's Nikkei skidded
0.8 percent to a one-week low as the yen gained against the dollar.
Wall Street was called to open flat on Thursday. The Dow and S&P
added 0.2 percent on Wednesday after the Fed's statement and
comments from Fed chair Janet Yellen.
GOLDMAN CHANGES FED CALL
The twin forces of the Fed and Greek uncertainty kept a lid on
global bond yields. On Wednesday, the Fed said that the economy was
probably strong enough to support a rate increase this year. But it
lowered its forecasts for 2015 growth and reduced its federal funds
rate forecast.
The 10-year U.S. Treasury yield, which hit an eight-month high last
week, fell as low as 2.26 percent, a two-week low. The 2-year yield
also hit a two-week low at 0.63 percent, marking a post-Fed decline
of as much as 10 basis points.
The Fed's stance tripped up some investors, who had expected the
central bank to signal a rate hike as early as September. Goldman
Sachs pushed back its forecast for the first increase to December
from September.
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"We had viewed a clear signal for a September hike at the June
meeting as close to a necessary condition for the FOMC to actually
hike in September, but the committee did not lay that groundwork,"
chief U.S. economist Jan Hatzius wrote in a note.
The decline in U.S. yields put the dollar under pressure, sending
the greenback down 0.6 percent against the yen to 122.65 yen. That
offset the Greek effect on the euro, and the single currency rose
0.5 percent to $1.1395. Earlier it rose above $1.14 for the first
time in a month.
Sterling hit a seven-year high on a trade-weighted basis, lifted by
UK retail sales figures that bolstered expectations the Bank of
England might soon raise rates.
In European bond markets, Germany's 10-year yield fell 6 basis
points to 0.75 percent. Last week, it was as high as 1.06 percent.
Other countries' yields also fell, and investors demanded a bigger
premium for holding the bonds of countries such as Spain over
safe-haven Germany. The 10-year Spanish/German spread widened as
much as 8 basis points to 158 basis points before settling back to
unchanged on the day.
In commodities, oil jumped on the back of the weaker dollar. Brent
crude rose 1.3 percent to $64.67 a barrel and U.S. crude rose 1.1
percent to $60.60.
Spot gold also got a boost from the weaker dollar and lower U.S.
interest rate environment, rising $11 to $1,195 an ounce.
(Additional reporting by Shinichi Saoshiro and Lisa Twaronite in
Tokyo; Editing by Larry King)
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