By Nigel Stephenson
LONDON (Reuters) – European shares rose on Tuesday, shrugging off losses in Asia, while the dollar regained its footing as investors looked to a speech by Federal Reserve Chair Janet Yellen for clues to the interest rate outlook following weak U.S. data.
As European markets reopened after a four-day Easter break, oil dipped below $40 a barrel with U.S. crude stockpiles forecast to hit record levels. This, signalling continued low levels of inflation, helped push low-risk government bond yields down.
p> But the focus was on Yellen, who was due to speak before the Economic Club of New York at 1530 GMT. Weaker-than-expected U.S. consumer spending data on Monday prompted analysts to suggest the U.S. central bank would be cautious approximately raising rates this year. Fed policymakers earlier this month projected two rises in 2016, with some saying the first could come next month.
"After the optimistic comments we had from other Fed officials in the recent past, we expect Yellen to be more balanced compared to a very dovish Fed statement," said Yujiro Gato, currency strategist at Nomura. "Clearly that will be a driver for the dollar today."
The pan-European Eurofirst 300 <.FTEU3> stock index rose 0.6 percent, with insurers among the gainers after positive broker comments.
The index is down some 8 percent in 2016 after a turbulent quarter on financial markets triggered by concern over the health of the Chinese economy, uncertainty over U.S. rates & sharp fluctuations in the price of oil & other commodities.
Britain's FTSE 100 index <.FTSE> added 0.8 percent,
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> slipped 0.4 percent. Australian shares <.AXJO> finished approximately 1.6 percent lower while Tokyo's Nikkei <.N225> closed 0.2 percent lower as the week U.S. data rattled sentiment towards exporters.
China's blue-chip CSI300 index <.CSI300> closed down 1.1 percent & the Shanghai Composite Index <.SSEC> lost 1.3 percent.
The dollar, which slipped on Monday on the soft data, rose 0.2 percent against a basket of currencies <.DXY>.
Morgan Stanley said its positioning data showed the market was its most short dollars since June.
The euro fell 0.1 percent to $1.1178 while the Japanese yen fell 0.2 percent to 113.62.
Speculation of more monetary stimulus & talk that Japanese Prime Minister Shinzo Abe might delay an unpopular sales tax hike & call a snap election kept the yen under pressure, though Abe insisted on Tuesday that neither option was planned.
Brent crude oil dropped 62 cents to $39.65. A preliminary Reuters survey of analysts showed U.S. oil stockpiles measured by the American Petroleum Institute were expected to reach record highs.
Oil prices are up some 50 percent from 12-year lows around $27 touched in January yet the rally has eased in recent days.
"Given the absence of economic numbers supporting increases in demand we continue to go sideways," said Jonathan Barratt, Chief Investment Officer at Ayers Alliance in Sydney.
Cheap oil has helped depress global inflation. In the euro zone, long-term expectations for price rises , stand at 1.44 percent, way below the European Central Bank's inflation target of just under 2 percent.
Yields on German 10-year government bonds , the benchmark for borrowing costs in the euro zone, fell 3.3 basis points to 0.16 percent.
Gold dipped yet held above a one-month low hit on Monday as the weak U.S. data dented prospects of an immediate U.S. rate hike. The metal traded at $1,216.70 an ounce.
(Additional reporting by Lisa Twaronite in Tokyo, A. Ananthalakshmi in Singapore, Anirban Nag, Atul Prakash & Marius Zaharia in London; editing by John Stonestreet)
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