(Updates prices, changes byline)
By Ian Chua
LONDON, April 29 (Reuters) - Caution ahead of a slew of key
U.S. economic data and an interest rate decision from the
Federal Reserve this week weighed on European and Asian stock
markets on Tuesday, setting Wall Street up for a negative start.
The rally in oil also spluttered with U.S. crude slipping
from Monday's record high near $120, but growing views that the
Fed may signal a pause or an end to its aggressive rate cutting
campaign after a widely expected easing on Wednesday helped
boost the dollar.
European stocks <> shed 0.5 percent after Deutsche
Bank <DBKGn.DE> unveiled more asset writedowns, but they were
still up over 5 percent this month and close to a two-month high
reached on Monday.
"There are a lot of key figures coming out this week on top
of the Fed rate decision, so it's not exactly a good time to
build positions before that," said Yann Lepape, economist at
Oddo Securities.
Japan's financial markets were shut for a national holiday
on Tuesday, while MSCI's index of other Asian stock markets
<.MIAPJ0000PUS> slipped 0.3 percent.
Global stocks, as measured by MSCI's main world equity index
<.MIWD00000PUS>, were also a touch softer, but still up more
than 5 percent this month at around three-month highs.
U.S. stock index futures <DJM8><SPM8><NDM8> were all
wallowing in the red, suggesting a negative open for the U.S.
market.
The price of crude oil, which hit an all-time high of
$119.93 a barrel on Monday, recoiled as the Grangemouth refinery
in Scotland reopened after a two-day strike that shut down a
pipeline that carried about half of Britain's crude supply.
"The refinery was expected to reopen on Tuesday and it has
with no new surprises, so there is some profit taking going on,"
said Melbourne-based Mark Pervan, a senior commodities analyst
at the Australian & New Zealand Bank.
U.S. light crude for June delivery <CLc1> fell 79 cents to
117.96 a barrel.
FED, DATA IN FOCUS
Investors have been gaining confidence in the last few weeks
with a tentative increase in risk appetite as they try to assess
whether the worst of the global credit crisis has past and as
central banks take action to help ease financial and economic
stresses.
"The sole idea of a Fed cutting by only 25 basis points and
then pausing for a couple of meetings to allow for more evidence
to be collected is almost certain to reinforce the optimism that
seems to have taken hold in the last month or so," said
Alessandro Mercuri, a strategist at ABN AMRO.
The rate-sensitive U.S. Fed funds futures market is giving
an 80 percent probability of a quarter percentage point easing
to the 2.25 percent Fed funds rate on Wednesday and a 20 percent
chance of no rate move. <FEDWATCH>
Just a few weeks ago the market had a 50 basis point rate
cut priced in.
"Markets are positioning for a rather hawkish Fed statement
in the sense that they are preparing to signal a pause," UBS
currency strategist Geoffrey Yu said.
Investors are looking for as much evidence as they can find
to back their tentative, new-found views. U.S. consumer
confidence data due at 1400 GMT will be one such marker. Another
will be what the Fed says on Wednesday.
The dollar has benefited from the changes in rate
expectations, rising 0.5 percent against a basket of major
currencies <.DXY> to be near Friday's one-month peak. The euro
reached a four-week low of about $1.5339 <EUR=>.
With stocks on the back foot, safe-haven government bonds
were better bid, pushing their yields lower.
Two-year Schatz yields slipped 3.1 basis points on the day
to 3.805 percent <EU2YT=RR>, while the 10-year Bund yield
<EU10YT=RR> shed nearly 4 basis points to 4.174 percent.
U.S. two-year Treasury yields eased 3.2 basis points to
2.335 percent <US2YT=RR> and the 10-year yield <US10YT=RR> edged
down 1.2 basis points to 3.858 percent.
(Additional reporting by Jeremy Gaunt and Veronica Brown)
