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LONDON (Reuters) - European shares and the strong dollar slipped on Wednesday after weak data from China and a rating downgrade of Italy curbed investors' ambitions pending the release of the Federal Reserve's June minutes.
After a five-day run of gains for world shares .MIWO00000PUS and the dollar's surge to a three-year high, investors were booking profits and squaring positions before the Fed minutes, which were due at 2.00 p.m. EDT.
Wall Street was expected to open fractionally lower after a hot streak this week which as taken the S&P 500 back to within 1 percent of May's all-time high.
Hints that the Fed will begin slowing its bond buying have sparked a near 5 percent rally in the dollar and a 50-basis point or so rise in the benchmark 10-year U.S. bond yield since mid-June, which has sent jitters through world markets.
Peter de Bruin, a senior economist at ABN Amro, said he expected the minutes to show a consensus forming at the Fed to start scaling back its $85 billion-a-month stimulus program in September, following a recent pick-up in U.S. data.
U.S. Treasuries were little changed at 2.6247 percent as U.S. trading began and benchmark German Bunds were also steady in Europe.
"I think we have already seen the main fireworks from the Fed's intentions to taper (scale back stimulus)," de Bruin said. "I would be surprised if we saw another strong rise in yields"
In the currency market, the dollar was down against the yen and a basket of currencies .DXY as traders locked in some of the U.S. currency's recent gains. <FRX/>
The drop also gave the euro and sterling a breather. Both tumbled the previous day, hurt by growing signs that central banks in the euro zone and Britain will keep policy loose for a long time.
Europe's broad FTSEurofirst 300 .FTEU3 share index had seen a positive start to the day but soon buckled as data showing China's exports fell for the first time in 17 months was followed by soft manufacturing figures from France, the Netherlands and Greece.
Ahead of the U.S. restart, the index was starting to edge back but was still down 0.2 percent, with London's FTSE, Frankfurt's DAX and Paris's CAC 40 down 0.3 to 0.4 percent.
MSCI's world index .MIWO00000PUS was up 0.2 percent, however, after a late rally in Chinese shares, sparked by talk of policy easing to combat slowing growth there.
China's slowing economy is troubling for Europe, whose economies are struggling to recover from the banking and debt crises.
With German firms selling increasing amounts to China, Deutsche Bank economist Gilles Moec said the euro zone's biggest economy would feel its slowdown the most.
"German exporters are disproportionately affected, because they tend to focus on sectors which are specifically struggling in China at the moment," Moec said.
Italian government bonds saw only a muted 7 basis points rise after S&P downgraded the country's debt to BBB late on Tuesday on concerns over its economy.
Spanish bonds felt the biggest impact, lagging most other euro zone debt as the S&P cut raised fears about its own weak credit rating. <GVD/EUR>
"The downgrade is a signal we are not ready to outperform for an enduring period in the periphery," BNP Paribas rate strategist Patrick Jacq said.
With many investors waiting for the Fed minutes, gold rebounded from light falls to trade near a one-week high and growth-attuned copper turned positive after initially falling on the Chinese data.
Oil prices on both sides of the Atlantic also rose, with the U.S. benchmark climbing to a 14-month high near $105 a barrel, buoyed by a sharp decline in fuel stockpiles in top oil consumer the United States.
"The market is too high from a fundamentals point of view," said Jonathan Barratt, chief executive of Sydney-based commodity research firm Barratt's Bulletin. "It is riding on the back of expectations of a revival in U.S. demand."
Additional reporting by Marius Zaharia and Peg Mackey; Editing by Ruth Pitchford, John Stonestreet