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 The 0.5 percent decline in the pan-European FTSEurofirst 300 index
took the shine off stocks after Chinese shares neared a two-month
high as the market's recent recovery continued.
The dollar meanwhile fell for the first time in four days as the
euro and the Canadian dollar, which had been knocked overnight by a
shock majority election victory for the country's Liberal party,
both rebounded.
The quarterly lending data from the ECB ahead of its meeting on
Thursday was the principal driver for the euro's bounce, and for the
turnaround in Europe's stocks and bonds after what had been a
positive start.
It dampened bets the euro zone's central bank will ramp up its 1
trillion euro asset purchase program, this week at least, showing
that euro zone banks had loosened their lending standards more than
expected over the last few months despite the recent global market
volatility.
Companies' demand for loans also rose, albeit by less than expected,
and a "further considerable increase" was predicted in the coming
months, the ECB said, as well as more easing of banks' lending
rules.
ECB Governing Council member Christian Noyer said late on Monday
that the bank's quantitative easing program was "well calibrated"
and did not need to be adjusted.
"The Noyer comments are important," said a senior trader at one
international bank in London. "It does seem as if they're trying to
back the market away from thinking there's going to be another
easing announcement."
Commodity markets were also taking advantage of the weaker dollar
following a tough start to the week.
Brent crude was little changed at $48.61 having dropped $1.85 a
barrel, or 3.7 percent, on Monday, while U.S. light crude was up 20
cents at $46.09 after a similar fall.
Copper, nickel and aluminum [MET/L] also tried to recover from two
straight days of falls driven by persistent concerns about
lackluster global demand and oversupply.
LOONIE FINE-TUNES
The Canadian dollar, known as the loonie, steadied at C$1.3020 to
the dollar after slumping almost 1 percent overnight after the
Liberal party's shock outright election victory. The Liberals have
promised more public spending and tougher environmental rules --
Canada has one of the world's 'dirtiest' oil industries.
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"It's a big surprise that it's a majority government and of course
it's a Liberal government," said John Hardy, head of FX strategy at
Saxo bank in Copenhagen, who didn't expect the CAD to hold up for
long.
"The dollar is just meandering about now so I think the market just
feels very uncertain about what to do in the current set of
circumstances (regarding the Federal Reserve's next move) and is
probably waiting passively for the ECB on Thursday too."
Though the bank lending data appeared to kill off the chances of
immediate action this week, policymakers continued to make noises
about the possibility the ECB will expand or extend its asset
purchases to spur growth and inflation.
"If the (ECB) deems it necessary, it could use the flexibility it
has given the acquisition program to extend its size ... or modify
its composition," said Bank of Spain Governor Luis Maria Linde,
echoing Austria's Ewald Nowotny last week.
In Asia overnight, MSCI's broadest index of Asia-Pacific shares
outside Japan shed 0.5 percent although Shanghai shares gained on
hopes an imminent Chinese five-year economic plan will include more
stimulus measures. [.SS]
(Additional reporting by Patrick Graham in London; Editing by
Catherine Evans)
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