GLOBAL MARKETS-Europe, U.S. stocks slip before stress tests

                                
 *U.S., European stocks fall ahead of stress test results
                                
 *Bond prices decline on U.S. jobless claims data
                                
 *Japan stocks hit six-month high
                                
 By David Gaffen
                                
 NEW YORK, May 7 (Reuters) -- World stock markets pulled
back as investors readied for the release of the U.S.
government's stress tests on the largest U.S. financial
institutions after the close of trading.
                                
 With stocks having rallied steadily for about two months,
fund managers reduced holdings even though leaked reports
suggest that bank balance sheets may be in better shape than
expected.
                                
 In addition, a better-than-anticipated report on weekly
U.S. jobless claims showed that the pace of job losses is
abating. The U.S. dollar fell against the euro and other
currencies, and bond prices were also lower as investors
shifted away from traditional safe-haven assets such as
Treasuries.
                                
 Bank stocks were lower, after the KBW Banks Index more than
doubled after hitting a low on March 6. The banks have been at
the forefront of this 35 percent rally in the Standard & Poor's
500-stock index, and investors are now left wondering whether
the gains will persist, even with this event out of the way.
                                
 "People have made a lot of money -- even if you got into
this rally late, you made a lot of money," said Sean Peche,
portfolio manager at hedge-fund BlueAlpha Investment Advisory
Ltd. in London. "The pullback just hasn't arrived."
                                
 Technology shares dropped on Thursday, as investors
expressed disappointment with earnings from security software
maker Symantec Corp. <SYMC.O>. Shares fell 15%.
                                
 The Dow Jones industrial average <.DJI> was down 56.95
points, or 0.67 percent, at 8,455.33 by midsession. The
Standard & Poor's 500 Index <.SPX> was down 5.40 points, or
0.59 percent, at 914.13. The Nasdaq Composite Index <.IXIC> was
down 29.76 points, or 1.69 percent, at 1,729.34.
                                
 Major European indexes were lower, after six consecutive
days of gains. Drugmakers and miners weighed on the market, and
financials fell ahead of the stress test results. The
FTSEurofirst 300 index <.FTEU3> lost 0.8 percent, with the
banking sector one of the biggest risers, while Germany's DAX
<.GDAXI> fell 1.6 percent.
                                
 Shares in Asia continued to rally. Japan's Nikkei stock
average rose 4.6 percent to a 6-month closing high on Thursday
as bank shares rallied. Mitsubishi UFJ Financial Group <8306.T>
gained more than 15 percent and Mizuho Financial Group <8411.T>
rose 12.1 percent. In Hong Kong, the Hang Seng index gained
2.3% <.HSI>.
                                
 The euro strengthened as investors reacted positively to
news that the European Central Bank would purchase up to 60
billion euros in debt securities outright in order to help
revive the struggling euro-zone economy. The news came as the
European Central Bank elected to reduce the bank's main
interest rate to 1.0 percent from 1.25 percent. The moves mark
a more aggressive move by the ECB to boost money supply in the
euro zone, which ECB President Jean-Claude Trichet said is
growing at a slower pace than desirable.
                                
 U.S. Treasury debt prices fell on Thursday as worries over
pending supply weighed on the market, while jobless claims data
supported some recent evidence that the economic tailspin may
be reaching a bottom.
                                
 The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
72/32, with the yield at 3.2559 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 2/32, with the yield at
0.9869 percent. The 30-year U.S. Treasury bond <US30YT=RR> was
down 48/32, with the yield at 4.1834 percent.
                                
 In currencies, the U.S. dollar was down against a basket of
major trading-partner currencies, with the U.S. Dollar Index
<.DXY> down 0.24 percent at 83.80 from a previous session close
of 84.001.
                                
 The euro <EUR=> was up 0.60 percent at $1.3397 from a
previous session close of $1.3317. Against the Japanese yen,
the dollar <JPY=> was up 0.63 percent at 99.05 from a previous
session close of 98.430.
                                
 In energy and commodities prices, U.S. light sweet crude
oil <CLc1> rose $1.27, or 2.25 percent, to  $57.61 per barrel,
and spot gold prices <XAU=> rose $4.15, or 0.46 percent, to
 $914.05. The Reuters/Jefferies CRB Index <.CRB> was up 2.75
points, or 1.16 percent, at 240.23.