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U.S. rate prospects spook global stocks, dollar struggles

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June 9
9:16 AM 2015

Shares in Europe and Asia fell on Tuesday as speculation intensified that the Federal Reserve could raise U.S. interest rates sooner than many expect, although this failed to give the dollar a significant boost.

Forecast-beating jobs data last Friday has triggered concerns the Fed could hike rates for the first time since 2006 as soon as September. Those worries looked set to push U.S. stocks lower on Tuesday, index futures indicated ESc1 SPc1.

The pan-European FTSEurofirst 300 index fell 0.7 percent to its lowest since mid-February, down for the sixth consecutive day. HSBC shares (HSBA.L) fell 1.1 after it announced a plan to cut up to 50,000 jobs and shrink its investment bank.

"We have had a pickup in some of the U.S. economic indicators and this development tends to go hand in hand with increasing rate hikes fears," said Robert Parkes, equity strategist at HSBC Global Research. Earlier, Tokyo's Nikkei index .N225 suffered its biggest fall in nearly a month, down 1.8 percent on U.S. rate worries and uncertainty over whether Greece can clinch a deal with its creditors to avoid default.

MSCI's main index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed 0.8 percent to a fresh 10-week low.

Chinese shares eased after soft inflation data suggested the economy was still struggling, even through Beijing is expected to add more policy stimulus.

The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen fell 0.7 percent.

MSCI will soon announce whether to include China 'A' shares in its Emerging Markets Index, a decision the index publisher says would draw $400 billion to China stocks over time.

On Monday, a 0.5 percent fall in the Dow Jones Industrial average .DJI saw the index slip into a loss for 2015.

The dollar held steady against a basket of currencies .DXY, still on the defensive after reports on Monday that President Barack Obama had expressed concern about the greenback's strength. The White House denied he had said this.

"Regardless of what he may or may not have said in the confidential meetings the press had no access to, in my view the reaction illustrates that the currency market is not yet ready to change over to more dollar strength, positive U.S. data or not," said Lutz Karpowitz, currency strategist at Commerzbank.

The euro EUR= was last down 0.2 percent at $1.1270, while the yen JPY= was up 0.4 percent at 123.98 per dollar.

GREECE TALKS

Concerns about a lack of progress in talks between Greece and its creditors have weighed on the euro in recent weeks.

Athens delivered new proposals it hopes will unlock vital funds, with Prime Minister Alexis Tsipras warning the cost of failure to reach a deal would be enormous.

German 10-year government bond yields DE10YT=TWEB were flat at 0.88 percent, pulling away from last week's highs just below 1 percent.

Higher seasonal demand in developed countries and the prospect of more stimulus in China helped lift oil prices. Brent crude LCOc1 was up $1.5 a barrel at $64.20

The dollar's relative weakness lifted gold but the prospect of higher U.S. interest rates limited gains. Spot gold XAU= last traded at around $1,181.70 an ounce.

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