* Central banks douse rate hike speculation
* European stocks climb, Goldman Sachs in focus
* Dollar, Treasury prices weaker
By Carolyn Cohn
LONDON, June 17 (Reuters) - The dollar weakened and U.S.
Treasury yields fell on Tuesday as investors reconsidered
whether central banks, including the Federal Reserve, will raise
rates this year.
European stocks gained on the mood as well as on hopes for
solid earnings from Goldman Sachs. Wall Street futures pointed
to a flat to positive start.
The Financial Times, Wall Street Journal and Washington Post
have run articles this week suggesting senior Fed officials were
questioning the market's pricing of aggressive U.S. interest
rate increases to curb inflation.
U.S. rate futures have been pricing in two quarter point Fed
hikes by October, racing ahead of analysts' expectations for
U.S. interest rates to stay at 2 percent for the rest of the
year and well into next. []
"It appears that there's a coordinated effort from the Fed
to get the message across it's not engaging on a tightening
cycle at the moment," said Nicola Chadwick, international
economist at CBA.
However, the dollar trimmed some losses against the euro and
Bund futures rose in European trade after European Central Bank
Executive Board member Lorenzo Bini Smaghi said a quarter-point
euro zone rate hike should suffice to bring inflation below the
bank's 2 percent target.
The ECB has signalled it will probably raise rates next
month, but markets have also priced in further tightening later
this year from the current 4 percent.
Rate rise expectations were further depressed by the Bank of
England even after reports of UK inflation rising to 3.3 percent
in May.
In a letter to the government explaining the number, the UK
central bank said while inflation could yet spike above 4
percent this year on soaring food and fuel bills, the focus was
on bringing inflation back to the 2 percent target in two years'
time.
The euro rose 0.2 percent against the dollar to $1.5491
<EUR=>. The dollar was flat to lower against a basket of major
currencies <.DXY>.
The benchmark 10-year U.S Treasury note yield fell 8 basis
points to 4.2013 percent <US10YT=RR>. Bund futures rose 28 basis
points to 110.37 <FGBLc1>.
The German June ZEW index of current conditions at 0900 GMT,
a key leading indicator for European markets, is forecast at
37.6 in June, down from 38.6.
STOCKS FIRM
European stock prices firmed as investors grew more
comfortable ahead of second-quarter earnings from U.S.
investment bank Goldman Sachs <GS.N>.
Lehman Brothers <LEH.N> shares rose as much as 9 percent on
Monday after chief executive Dick Fuld expressed confidence in
the bank, even as it posted its first quarterly loss as a public
company.
"Goldman Sachs hasn't been one of those severely affected by
the financial crisis and I think they will reassure the market
with a positive surprise," said Stefan de Schutter, asset
manager at Alpha Trading.
The FTSEurofirst 300 <> index of top European shares
was up 0.9 percent and Britain's FTSE 100 <> was up 1.8
percent.
The MSCI index of stocks in the Asia-Pacific region outside
of Japan also rose three-quarters of a percent <.MSCIAPJ>.
However, China's main stock index <> tumbled nearly 3
percent to a 15-month closing low because of concern about
domestic inflation and the market's ability to absorb fresh
supplies of equity.
Oil prices fed inflation worries, although they eased to
$133.32 a barrel from the all-time high of $139.89 <CLc1> hit on
Monday, with traders caught between a weaker dollar and
expectations that top exporter Saudi Arabia will ramp up output
to its highest rate in decades.
(Additional reporting by Kevin Plumberg in Hong Kong and Simon
Falush and Patrizia Kokot in London)
