(Rewrites with European markets opening, changes dateline,
byline)
By Peter Starck
FRANKFURT, May 20 (Reuters) - Stocks fell on Tuesday, ending
several days of gains as crude oil prices traded near record
highs and the Bank of Japan said inflation risks were rising
worldwide.
Europe's benchmark FTSEurofirst 300 index <> was down
0.8 percent at 0845 GMT, snapping a four-day winning run. The
MSCI Asia ex-Japan index <.MIAPJ0000PUS> fell 1.3 percent,
having risen for the previous six sessions.
Futures <DJc1> <SPc1> <NDc1> on leading U.S. stock market
indexes <> <.SPX> <> traded between 0.2 and 0.3
perecent lower.
"It's natural that you have a bit of profit-taking after
some days of gains but this is a temporary consolidation," said
Philipp Vorndran, investment strategist at Credit Suisse Asset
Management.
"Markets are clearly focused on whether inflation pressures
are mounting further," he said.
In Germany, Europe's largest economy, producer price
inflation accelerated to a 20-month high of 5.2 percent
year-on-year in April, boosted by surging energy prices,
official data showed on Tuesday.
Swiss producer prices rose 3.6 percent year-on-year in
April, also driven by higher commodity prices.
U.S. producer prices for April are due for release at 1230
GMT. Economists polled by Reuters expect a rise of 0.4 percent
from March.
Higher producer prices would hurt corporate profit margins
on both sides of the Atlantic, analysts said.
"Firms can clearly not put up prices substantially in
response to rising costs in the current demand depleted
environment, and the consequence of this is that margins are
clearly being squeezed," Dutch bank ING said, addressing the
effects of higher producer prices for U.S. companies.
"The need for firms to make cutbacks, and offset margins
contraction will likely exacerbate weakness in an already
softening (U.S.) labour market," ING said in a note.
German brokerage Steubing said the European Central Bank,
which unlike the U.S. Federal Reserve has not loosened monetary
policy, was coming under pressure to raise interest rates.
EYES ON ZEW
"This will accentuate the weakness of the U.S. dollar and
given current levels, this will result in a substantial squeeze
of (euro zone companies') profit margins, which are already
under threat from labour costs and commodities," Steubing said.
The dollar eased on Tuesday, failing to sustain an overnight
recovery, as worries persisted about the outlook for the U.S.
economy and caution prevailed ahead of German sentiment data.
The Bank of Japan (BoJ) kept its overnight call rate target
unchanged at 0.50 percent as widely expected, and BoJ Governor
Masaaki Shirakawa said there was "a high level of downside risk
centring on the U.S. economy."
"On the other hand, oil prices have hit a new record high
and the risk of inflation is also rising ...," he said.
The rise in oil prices and a rebound in the price of gold
<XAU=> added to the dollar's weakness, as the U.S. currency
typically moves in the opposite direction to those prices.
The ZEW investment confidence indicator for May is due at
0900 GMT.
Commerzbank said a weak ZEW reading could stop the euro in
its tracks. "In case the indicator worsens notably, we see the
risk that euro/dollar is going to establish below the 1.5550
level," the bank said in a foreign exchange strategy note.
At 0835 GMT, the euro traded at $1.5601.
"Rising U.S. producer prices could accelerate euro/dollar
losses, since they would support the idea of a Fed pause and
would confirm speculation of a first rate hike at the end of the
year," Commerzbank said.
U.S. oil <CLc1> was trading near $127.5 a barrel after a
record close on Monday.
The stock market slide lifted government bonds, sending the
June Bund future <FGBLc1> up to 113.51 from 113.25 at Monday's
settlement close.
Benchmark 10-year Bunds yielded 1.8 basis points less at
4.195 percent <EU10YT=RR>, or 37 basis points over same-maturity
U.S. treasuries.
In soft commodities, U.S. wheat futures <Wc1> rose 1.9
percent on worries that a lack of rain in key growing areas
could have tightened supply in Australia.
(Additional reporting by Kevin Plumberg and Alison Leung in
Hong Kong, Chikako Mogi and Eric Burroughs in Tokyo and Michael
Byrnes in Sydney; editing by David Christian-Edwards)
