European shares at two-month high, oil flat ahead of OPEC

By Marc Jones LONDON (Reuters) - Bets on more central bank support took European shares to a two-month high and kept the region's bond yields at record lows on Tuesday, as oil prices hovered at just under $80 a barrel ahead of an OPEC meeting this week. Markets were still trying to catch their breath after a hectic few days of sharp share rises, currency swings and new lows for euro zone bond yields following strong easing signals from ECB head Mario Draghi and a surprise Chinese rate cut. Wall Street was expected to add fractionally to Monday's record finish when trading resumes. By then traders will have what is expected to be a reassuring update on third quarter U.S. growth. Asian stocks dipped but Europe's bourses shrugged off a slow start with Britain's FTSE 100, Germany's DAX and France's CAC 40 pushing up 0.2-0.9 percent to their highest since the end of September. "We have had fresh signs of easy money coming from China and strong signals from Mario Draghi and the ECB and that is what is driving markets at the moment," said Kerry Craig, a global markets strategist at JP Morgan. "There are real risks of recession and deflation, but there are also reasons to believe that 2015 will be a better year for the euro zone than this year has been." Euro zone government bond yields also held at record lows and the euro pottered in a $1.2430-40 range with financial markets lulled by Draghi's vow to lift inflation by whatever means necessary. German data showed a rise in private consumption helped its economy - Europe's biggest - avoid recession last quarter, while France saw a better-than-expected rise in business morale. "These results go in the right direction, they must now be consolidated in the coming months," said French Finance Minister Michel Sapin. It came though as the Organisation for Economic Co-operation and Development again raised the euro zone as a central threat to the global economy. The bloc is facing stagnation and increased deflation risk, it warned, as it repeated its call for the ECB to put aside its taboos and start buying government bonds in quantity. Among ECB members the debate over further easing appears to be continuing. France's ECB member Christian Noyer said in Tokyo that the central bank's statements about boosting its balance sheet by around 1 trillion euros were an expectation rather than a firm commitment. That followed Bundesbank chief Jens Weidmann's warning on Monday that government bond buying would face serious legal hurdles. OPEC WATCH Markets showed little reaction to overnight unrest in the St. Louis suburb of Ferguson, Missouri that broke out after a grand jury cleared a white police officer in the fatal August shooting of an unarmed black teen. The yen rose against a largely subdued dollar after Bank of Japan minutes showed there had been a split among the bank's members over its recent decision on new stimulus. Australia's dollar, in contrast, hit a four-year low after Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said the currency was overvalued and he expected it to fall. Oil prices remained the other key focus for financial markets as they held at just under $80 a barrel, ahead of Thursday's hotly anticipated OPEC meeting in Vienna. They have fallen almost 30 percent since the middle of the year and pressure is on the Organization of the Petroleum Exporting Countries (OPEC) to curb production to prop up the market. "The reduced leverage that OPEC now has over the oil market is likely to make it more cautious about cutting production," strategists at Barclays said in a note. "The rapid growth being achieved in non-OPEC production means it faces the risk that even a large cut to supply may not be enough to support prices and could simply result in lost market share and revenue," they added. Russia, which needs higher oil prices to support its economy, tried to sway OPEC to slash production, suggesting Moscow could cut its own crude output. Though oil was holding steady, the bruised Russian rouble got another bash as its recent rebound ran out of steam. Russia's dollar-based RTS stock index dropped 1.3 percent. Safe-haven gold meanwhile nudged up to $1,200 an ounce after small losses in the previous session, as traders eyed the dollar and a Nov. 30 Swiss referendum on central bank gold reserves. (Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Hugh Lawson and Susan Fenton)