GLOBAL MARKETS-European shares head for first weekly drop since April

Reuters - UK Focus

* European shares inch up, but Iraq, data weigh

* Most Asian markets down with U.S. outlook in spotlight

* U.S. 10-year yield near 3-week low, German yield near

1-year trough

* Canadian dollar at 6-month high following inflation


* Wall Street set for second week of losses in three

By Marc Jones

LONDON, June 27 (Reuters) - Concern about Iraq and Ukraine

and subdued economic data left European shares facing their

first week of losses since early April on Friday. Gold rose to

near a two-month high.

Other safe-haven assets - the yen, Swiss franc and German

and U.S. government bonds - were also in demand as investors

backed away from the riskier bets they have been making for much

of this year.

Stock rose slightly in London, Frankfurt

and Paris but fell in Greece and Portugal. Losses

earlier in the week meant European shares were set to bring a

10-week run of gains to an end.

Fighting between Iraqi forces and insurgents raged in the

home town the late dictator Saddam Hussein and Russia warned of

"grave consequences" as Ukraine signed a trade and political

agreement with the European Union.

The uncertainty, along with a run of disappointing data this

week, meant that Wall Street was poised for another

subdued start and its second week of losses in the last


"Part of it was the GDP shock two days ago, then we get the

soft consumer spending data," said Philip Marey, a U.S. focused

economist at Rabobank. "A few weeks ago, there was this big

exuberance and the sky was the limit and now those hopes have

really faded."

Gold was closing in on a fourth straight weekly gain at

$1,315 an ounce, as the geopolitical unrest boosted its appeal

and the soft U.S. data weakened the dollar.

On the other hand, any substantial slowdown in major

economies could keep interest rates at record lows for longer.

The mixed messages kept markets struggling for clarity.

"The advance has stopped for a while, but there has been no

five or 10 percent correction," said Alvin Tan, a strategist at

Societe Generale (Paris: FR0000130809 - news) . "And that is a result of the environment of

very low volatility we have at the moment."

Investors were also digesting an unexpected drop in euro

zone business and consumer confidence data and a

small rise in German inflation numbers. Both are important for

the European Central Bank's future policy.

The decline in sentiment confirmed recent PMI data, and

underscored the low gear the 18-country bloc's economy was stuck

in and the need for European leaders to accelerate growth plans.


Not all market moves fitted with conventional wisdom.

Oil, usually the most sensitive to Middle East unrest, was

on course for its biggest weekly drop since January, since the

fighting in Iraq has not yet spread to the south where most of

the country's oil is produced.

At $113 a barrel, prices have dropped nearly $3 from a

nine-month high of $115.71 hit on June 19. "The exaggerated fear

premium is being priced out," said Carsten Fritsch, a senior oil

and commodities analyst at Commerzbank (Xetra: CBK100 - news) in Frankfurt.

Asian shares had followed Wall Street lower overnight.

Japan's benchmark Nikkei fell 1.5 percent and regional

markets, with the exception of Wellington and Mumbai, all posted


The 10-year U.S. Treasuries yield held near a four-week low

at 2.52 percent in European trading.

The U.S. dollar index also stuck tight to one-month

lows reached on Wednesday. At 80.150, it stood just above its

low of 80.091. The dollar also hovered around a five-week low of

101.315 yen.

The euro was little changed at $1.3618 after the euro

zone data.

Standout performers were the New Zealand dollar, which was

close to its highest in nearly three years on rate hike bets,

and the Canadian dollar, which rose to a six-month high as

investors sought out higher-yielding currencies.

Among emerging markets, Central European currencies were

broadly weaker against the euro . But the

Russian rouble rose to a five-month high as traders

wagered that any new Western sanctions would be flimsy.

"In all honesty. I don't think that Russia will intervene

further in Ukraine," said Peter Elam Hakansson, fund manager

Chairman of East Capital.

"If they did, the rest of Ukraine would immediately rush to

join NATO and ally with the West... That would mean they would

lose any influence in Ukraine, and that is not what they want."

(Reporting by Marc Jones; Editing by Larry King)

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