(Updates, adds Wall Street outlook)
By Jeremy Gaunt, European Investment Correspondent
LONDON, April 3 (Reuters) - A gloomy outlook from Federal
Reserve Chairman Ben Bernanke weighed on European stocks and
prospects for Wall Street's open on Thursday although investors
managed solid gains in Asia and broadly lifted the dollar.
Bernanke conceded for the first time on Wednesday that the
U.S. economy may slip into recession, although he also said
growth should pick up later this year as interest rate cuts and
other emergency moves take root.
The tone depressed U.S. stocks overnight and some vestiges
of the mood hung over Europe, particularly the banking sector.
U.S. stock futures pointed to a weak start in New York.
"We had an exceptionally weak first quarter and started the
second quarter with a strong rally, but there are clearly
question marks over whether the rally can sustain itself," said
Darren Winder, head of macro and strategy research at Cazenove.
The FTSEurofirst 300 index <> of top European shares
was down 0.3 percent with banks the top-weighted losers.
Euro zone services growth slowed further in March as the
credit crunch tightened its grip, according to final data from
the RBS/NTC Eurozone Purchasing Managers survey.
Retail sales in the bloc, meanwhile, turned out much weaker
than expected in February, according to the European Union's
statistics office.
Asian shares climbed strongly with investors focusing on
resource shares.
MSCI's measure of Asian stocks outside Japan <.MIAPJ0000PUS>
rose 1.2 percent and Japan's Nikkei average <> rose 1.5
percent or 200 points to 13,389.90. The broader TOPIX <>
rose 1.4 percent to 1,299.64.
"We are at an interesting juncture where we've got negative
forces like the U.S. credit and subprime problems and positive
forces from all the demand for resources," said Peter Vann, head
of investment research at Constellation Capital Management in
Australia.
Market focus was also on U.S. jobs data due on Friday. It
was seen as a gauge both of the state of U.S. growth and as a
marker for the likely pressures on U.S. consumers, a major
driver of the global economy.
Non-farm payrolls are expected to show the economy shed jobs
in March for a third month running, but some analysts see scope
for an upside surprise after a report on Wednesday showed the
private sector added 8,000 jobs against forecasts for a 48,000
loss.
DOLLAR BUMP
Currency markets were also generally more bullish about the
longer-term prospects for the U.S. economy, at least in terms of
interest rate expectations.
The dollar rose broadly with focus on a recent run of firmer
than expected U.S. data that suggests interest rates may not
need to be slashed as much as previously thought.
Despite Bernanke's remarks, markets are now pricing in just
a 10 percent chance of a half percentage point U.S. rate cut
this month -- down from as much as 62 percent last Friday.
The euro was down 0.9 percent at $1.5553 <EUR=>, having
retreated from record peaks above $1.59 touched last month. The
dollar was up 0.5 percent at 102.70 yen <JPY=>.
Euro zone government bonds were flat. The interest
rate-sensitive Schatz <EU2YT=RR> yielded 3.522 percent and the
10-year Bund <EU10YT=RR> 3.984 percent.
(Editing by Gerrard Raven)
