By Jamie McGeever
LONDON, April 3 (Reuters) - Slightly slower growth in eurozone business activity last month and caution ahead ofThursday's European Central Bank policy decision halted thisweek's European stock market rally in its tracks.
Investor (Other OTC: IVSBF - news) appetite for risk did show up in some areas,however, with long-term Greek government borrowing costs fallingbelow 6 percent for the first time in four years ahead of thecountry's expected return to the bond market later this month.
Signs of a post-winter improvement in the U.S. economy,expectations Beijing will take steps to boost the Chineseeconomy and a reduction in emerging market volatility had liftedglobal stocks and core government bond yields this week.
On Wednesday the S&P 500 hit a record high and Asianstocks a four-month peak, while benchmark U.S. 10-year Treasuryyields hit a one-month high and Greek 10-year yields posted their biggest one-day fall in two months.
The global focus on Thursday switched to Europe. Purchasingmanagers index data showed that growth in euro zone businessactivity slowed in March but was solid over the quarter.
Seventy of 72 economists polled by Reuters expect the ECB tokeep interest rates on hold at a record low 0.25 percent. Butwith inflation at a four-year low of 0.5 percent, the door isopen to further easing, if not today then in the coming months.
"Risk assets in Europe are broadly flat. The main news inEurope was the PMI reports (and) the final euro area indices forMarch were a tad lower than expected," said Barclays (LSE: BARC.L - news) economistsin a note to clients.
"Market attention will now shift to the ECB policy decisionand press conference. While we do not expect a policy changetoday, the risks are finely balanced," they said.
At 1110 GMT all of Europe's major indices were flat on theday. The FTSE Eurofirst 300 index of leading European shares wasat 1,343 points, Britain's FTSE 100 index wasat 6,658 points, Germany's DAX was trading at 9620points and France's CAC 40 was at 4431 points.
DRAGHI DISAPPOINTMENT DANGER
Overnight, MSCI (NYSE: MSCI - news) 's broadest index of Asia-Pacific sharesoutside Japan added 0.1 percent, brushing a newfour-month high, and Japan's Nikkei jumped 1.2 percentto a three-week peak after China cut taxes for small firms andupdated infrastructure spending plans.
In bond markets 10-year German government bond yields inchedup a basis point to 1.63 percent and Greek yieldsslipped to a fresh four-year low of 6.16 percent.
Greece lined up a group of banks on Thursday to manage itsfirst new bond sale since the country restructured its debt twoyears ago. The transaction, expected later this month, will markone of the fastest-ever comebacks for a defaulted sovereign.
France and Spain sold a combined 13.1 billion euros of bondson Thursday in auctions that drew strong demand from investors.
In currencies, the yen remained on the back foot as itssafe-haven appeal continued to fade. The dollar traded at 103.95yen, after briefly touching a 10-week high of 104.075.
The euro slipped 0.1 percent to $1.3753 against thedollar, as traders bet on an outside chance the ECB will act.
"The danger of at least minor disappointment today is real,though Mr. Draghi's press conference will doubtless leave thedoor open to further easing should deflationary pressures grow,"SocGen (Paris: FR0000130809 - news) analysts said, referring to ECB president Mario Draghi.
Sterling slid 0.2 percent to $1.6590 as a fall in UKservice sector growth to an eight-month low in March offsetearlier remarks from Bank of England governor Mark Carney thatinterest rates could rise before May next year.
Beyond the ECB meeting investors will be looking to U.S.employment data for March on Friday. Private-sector jobs andfactory orders data on Wednesday strengthened expectations ofanother solid report.
In commodities markets, gold fell 0.5 percent to$1,283 an ounce, three-month copper on the London Metal Exchange was down 0.75 percent at $6,625.00 a tonne, and Brentoil was flat at $104.77 a barrel. (Reporting by Jamie McGeever; Editing by Toby Chopra)
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