LONDON (Reuters) - A rally in world share markets paused near eight-month highs on Monday while the low-yielding yen climbed off an earlier five-month low against the euro as investors awaited more evidence of an economic recovery before extending last week's gains further.
European banking stocks were the top losers after an auction to determine insurance payouts on Greek sovereign bonds showed investors fear for the country's financial future even after a debt restructuring and aid packages. Lingering concerns that Portugal may need to restructure its debt also kept investors cautious.
U.S. stock futures .SPc1 pointed to a lower open on Wall Street, which had their best week in three months last week after the Federal reserve gave a positive outlook for the U.S. economy.
This in turn scaled back expectations the Fed would conduct a new round of monetary policy easing, supporting the dollar broadly.
The dollar was steady against a basket of currencies on Monday. Oil prices, seen as the big risk to the global economic outlook, dipped towards $125 a barrel after gaining $3 on Friday but no new catalysts emerged to further boost risk appetite and push stocks higher.
"We think the (equity) rally has a bit more legs yet but there's no doubt that it is not going to get there in a straight line," Barclays Wealth Equity Strategist William Hobbs said.
Hobbs singled out the healthy state of many corporate balance sheets as a key factor supporting riskier assets.
"We still think the prospects for earnings growth are reasonable. Alongside this, stock markets are very inexpensive still ... and also central banks are likely to remain helpful for a while yet."
The MSCI world equity index .MIWD00000PUS was largely flat at 335.98, marking a rise of over 12 percent for the year so far.
The FTSE Eurofirst .FTEU3 index of top European shares was down 0.2 percent, while emerging stocks .MSCIEF lost 0.3 percent.
The euro was down 0.1 percent at around $1.3164, while the dollar was steady .DXY against a basket of major currencies.
Global real bond yields: link.reuters.com/byn65s
Equities correlation to dlr: link.reuters.com/dek27s
German 10-year yields were last 5.2 basis points lower on the day at 2.01 percent while 10-year U.S. Treasury yields fell 3 basis points to 2.27 percent.
Selling pressure on German Bunds could resume if flash euro zone manufacturing and service surveys due on Thursday show signs that the bloc's economy was keeping pace with the United States.
The political environment in Europe leading up to forthcoming French and Greek elections, as well as high oil prices and concerns about the strength of growth in Asia are all lingering uncertainties weighing on sentiment in global markets.
While Brent crude dropped around half a percent to $125.22 a barrel on Monday after higher output from top exporter Saudi Arabia and plans by Iraq to expand its export routes.
However, the price remains high, posing a big risk factor to the brighter global economic outlook with tougher Western sanctions against Iran for its nuclear program due to come into effect on July 1, potentially disrupting Middle East supplies.
"It's a question of whether other producers can handle a significant supply disruption," said Ric Spooner, chief market analyst at CMC Markets in Sydney.