* German elections weigh on euro, bonds
* Stocks lower after rally, oil slips
* Middle East, North Africa and Japan weigh
By Jeremy Gaunt, European Investment Correspondent
LONDON, March 28 (Reuters) - The euro weakened on Monday
after German Chancellor Angela Merkel's conservatives were
routed in elections in a key state, while world shares eased
back from their recent rally.
Concerns also lingered about reports of soaring radiation
levels at a damaged nuclear plant in Japan, and about the impact
of the fighting in oil-producer Libya.
Merkel's conservatives lost power in regional stronghold
Baden-Wuerttemberg on Sunday, with early poll results showing
the Greens, buoyed by Japan's nuclear crisis, surging to their
first state premiership. []
Barclays Capital said in a note that the result meant
Merkel, the leader of Europe's largest economy, would be more
reliant on support from opposition parties and that it could
feed uncertainty about political support for a euro zone bailout
package.
The euro eased against the dollar as a result, to $1.4060
<EUR=> but the dollar was also aided by hawkish comments from
some Federal Reserve officials.
"It is a combination of setbacks to German Chancellor Angela
Merkel's party and the U.S. dollar being lifted by those
comments from the Fed officials which led some investors to
short the euro," said Adam Myers, senior currency strategist at
Credit Agricole.
St. Louis Federal Reserve President James Bullard said on
Saturday that lengthening the "extended period" of low interest
rates could encourage a liquidity trap. []
It followed comments on Friday from Philadelphia Federal
Reserve Bank President Charles Plosser, who said the Fed would
have to reverse its easy money policy in the "not-too-distant
future" to avoid sowing the seeds of inflation. []
WEAKER SHARES
World shares as measured by MSCI <.MIWD00000PUS> were down
around 0.3 percent with the pan-European FTSEurofirst <>
down 0.2 percent and Japan's Nikkei <> off 0.6 percent.
The slip followed a fairly strong rally last week that belied
the overall negative news from disaster-hit Japan and turmoil in
the Arab world.
"We had a nice bounce last week. Markets have been resilient
in the face of some hideous news," said Justin Urquhart Stewart,
director at Seven Investment Management.
The Western-led military intervention in Libya was allowing
rebel forces to gain ground. Syria deployed its army to the
country's main port over the weekend in an attempt to rein in
spreading protests across the country, while in Yemen talks
stalled between the government and opposition. []
[]
Despite this, the price of crude fell. Brent <CLc1> was down
60 cents at $114.91 a barrel.
On bond markets, German government bonds opened lower after
the election result.
Portuguese bonds meanwhile were set to remain under pressure
with the country in political limbo and facing snap elections
which could make it difficult for Lisbon to finance itself ahead
of bond redemptions in April and June. []
(Additional reporting by Brian Gorman; Editing by Hugh Lawson)
