* MSCI world equity index down 0.4 pct at 253.21
* Investors turning cautious after strong data prompts rally
* Dollar rises on reserve comments; govt bonds firmer
By Natsuko Waki
LONDON, June 3 (Reuters) - European stocks fell and Wall
Street was set for a weaker start on Wednesday as investors
turned cautious after economic optimism pushed world stocks to
fresh 7-1/2 highs and sterling to 2009 peaks earlier.
The dollar rose against European currencies after officials
told Reuters Asia's richest central banks would shrug off losses
from a possible U.S. sovereign credit rating downgrade and
continue to buy Treasuries to keep markets stable.
Expectations the worst may be over for the world economy
grew after a survey showing improvement in the euro zone and UK
service sector and data showing surprise first-quarter growth in
Australia.
However, investors are reluctant to push the risk asset
rally further before getting more solid evidence of an economic
turnaround. A private-sector survey on U.S. employment and
factory orders data later will provide more pointers.
"Return to growth ... is good but the question is how
sustainable it is going to be, how rapidly the economy is going
to grow from here," said Peter Dixon, UK economist at
Commerzbank.
"The data today did not give us any insight how far and
quickly we are going to grow. There are still a huge number of
structural issues in the economy which might prevent growth from
picking up."
MSCI world equity index <.MIWD00000PUS> fell 0.4 percent
rose having risen as high as 255.16, its highest since
mid-October. The index has risen 12 out of past 13 weeks and is
now up around 12 percent this year.
The FTSEurofirst 300 index <> fell 1.1 percent while
emerging stocks <.MSCIEF> were steady on the day.
U.S. stock futures fell around half a percent <SPc1>,
pointing to a weaker open on Wall Street later.
"We believe the downside and upside risks to equities are
now quite symmetrical and believe strongly that the lows have
been seen," Credit Suisse said in a note to clients.
"The upside risk to equities is further aggressive
quantitative easing. We believe we are in a range trading market
like the 1970s."
U.S. crude oil <CLc1> fell 1 percent to $67.81 a barrel.
The euro zone purchasing managers index was revised higher
to 44.8 in May from a flash estimate of 44.7, and 43.8 in April.
In the UK, the services sector staged a surprise return to
growth last month with the PMI index rising to 51.7 from 48.7.
FAITH IN DOLLAR
The dollar rose against European currencies after sources
told Reuters a U.S. ratings cut would not cause China, Japan,
India and South Korea to change their reserve policies, at least
in part because there are no alternatives to the liquidity
afforded by the dollar.
The dollar <.DXY> was up 0.5 percent against a basket of
major currencies, having been under pressure in recent weeks.
Earlier, sterling hit seven-month highs of $1.6664 <GBP=D4>
and 160.40 yen <JPY=>. It rose to a six-month high of 85.77
pence per euro <EURGBP=>. On a trade-weighted basis, it hit a
2009 high of 83.4 <=GBP>.
The low-yielding yen fell 0.3 percent to 95.95 per dollar
<JPY=>. The Australian dollar hit an eight-month high $0.8265
<AUD=D4>, its highest since late September.
The June Bund future <FGBLc1> rose 77 ticks, supported by a
retreat in stocks.
The yield on benchmark 10-year Japanese government bonds
rose to 1.550 percent, its highest in more than seven months
<JP10YTN=JBTC>. Government bond yields around the world have
been rising in recent sessions because of worries over mounting
debt in Western governments.
(Additional reporting by Dominic Lau; editing by Chris Pizzey)
