August 15, 2012 / 12:32 AM / in 5 years

Shares slip, ECB hopes drive German bonds to 6-week low

LONDON (Reuters) - Worries about the slowing global economy following some gloomy data hit shares in Europe and Asia on Wednesday, although expectations of central bank action to stabilize the euro zone propped up the euro and tempered demand for German bonds.

Visitors look at a monitor displaying market indices at the Tokyo Stock Exchange in Tokyo July 13, 2012. REUTERS/Toru Hanai

European and global financial markets have been riding high in recent weeks on hopes that ECB plans due to be detailed in September can put a floor under Spain and Italy’s debt troubles and prevent the euro from unraveling.

Such hopes are partly countering the effects of weak data including figures on Tuesday which pointed to the euro zone sliding back towards recession, on top of earlier data showing global emerging economies like China faltering.

“There appears no end in sight in the near-term for an end to economic contraction in the fiscally-challenged euro zone members,” said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi.

Top European shares .FTEU3 were down 0.3 percent in early trading, thinned by the summer lull. Indexes in London .FTSE, Paris .FCHI and Frankfurt .GDAXI were all lower, following weakness in Asia, and keeping global indexes on the back foot despite positive U.S. retail sales data on Tuesday.

“The weakening growth outlook is likely to lead to more aggressive monetary easing from the ECB, weakening the euro further ahead,” Hardman added.

The brighter U.S. consumer data had lifted the mood of markets late on Tuesday before profit taking in Asia pushed indexes back down.

EASING APPEASING

Global shares are up over 3.2 percent .MIWD00000PUS since the start of the month but investors remain nervous while they wait to see if ECB action lives up to expectations.

ECB President Mario Draghi has said the bank will flesh out plans to bring some stability back to strained euro zone bond markets early next month, driving hopes the bloc could start to right itself again in the second half of the year.

In contrast to the selloff in share markets, the euro was marginally up at $1.2334 by mid morning against an otherwise broadly higher dollar, while prices of German bonds - favored by risk-averse investors - hit a six-week low.

Economists also believe Bank of England policymakers are considering more help for the British economy. All nine members of its Monetary Policy Committee voted to maintain the BoE’s asset purchase target at the 375 billion pound level agreed in July, minutes showed, but some said there was a good case for more.

In line with the European and Asian trend, U.S. stock index futures pointed to a slight dip at the open on Wall Street, with futures for the S&P 500 down 0.2 percent, Dow Jones futures down 0.16 percent and Nasdaq 100 futures down 0.28 percent at 0824 GMT.

Tensions in the Middle East were also influencing markets, in particular worries that Israel could launch an attack on Iran in the coming months.

Brent crude futures slipped below their $114 three-month high after the United States disputed reports of an imminent move by Israel, saying it did not believe any decision had been made.

Gold edged back up, having dipped to a near two week low on Tuesday.

Reporting by Marc Jones; Editing by Will Waterman and David Stamp

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