By Jeremy Gaunt, European Investment Correspondent
LONDON, July 2 (Reuters) - European shares on Wednesday
shrugged off sharp losses in Asia, including the worst losing
streak in 43 years in Japan, and put in gains while the euro
rose ahead of an expected interest rate hike.
Oil, however, clung to levels around $142 a barrel, feeding
concerns about inflation.
Volatile European stocks were buoyed by Deutsche Bank
<DBKGn.DE>, which said it expected to make a profit in the
second quarter of the year and therefore did not need to turn to
shareholders for extra cash.
The bank made the remarks after its shares, along with other
banks, took a pummelling on fears for financing. Banks have been
particularly hard hit by the subprime mortgage and credit
crisis.
Its shares were up 4.6 percent, helping lift the
pan-European FTSEurofirst <.FTEU> up 0.4 percent.
This bucked the early international trend.
Japan's Nikkei average <> fell 1.3 percent as worries
about the global economy hit exporters such as Canon Inc
<7751.T>. The loss marked its 10th straight negative day, its
longest losing streak since February-March 1965.
"The worst factor for the market is oil prices that don't
stop rising. Investors are in a complete wait-and-see stance,"
said Koichi Ogawa, chief portfolio manager at Daiwa SB
Investments.
The Nikkei lost 176.83 points to end at 13,286.37, the
lowest close since April 16. The broader Topix <> shed 1.4
percent to 1,301.15, its lowest finish since April 17.
Confidence in the UK housing sector, for example, was
knocked after Taylor Wimpey <TW.L> failed to complete a capital
raising.
Shares in Marks and Spencer <MKS.L> also hit a 7-year low
after the clothes, food and homewares group issued a shock
profit warning, adding that others were likely to follow suit in
a deepening consumer downturn.
OIL SUPPLY, RISING EURO
Oil continued to trade in a range a few dollars below
Monday's record high above $143 on forecasts that global supply
will lag demand.
U.S. crude <CLc1> was up 90 cents to $141.80 a barrel.
The International Energy Agency on Tuesday cut its global
oil supply capacity forecast by 2.7 million barrels per day to
95.33 million by 2012, boosting prices already lifted by tension
between Iran and Israel.
Traders also bought crude on the weak dollar, which softened
against the euro on Wednesday ahead of Thursday's European
Central Bank meeting, which is widely expected to raise interest
rates to deal with quickening euro zone inflation.
The euro hit two-month highs against the dollar and looked
set to stay firm ahead of the ECB meeting.
Sterling fell broadly on the tumbling housing shares and
Marks and Spencer.
The ECB is widely expected on Thursday to lift interest
rates to 4.25 percent from 4.0 percent in order to anchor
inflation and markets are starting to brace for hawkish-sounding
comments from President Jean-Claude Trichet.
"There's some heavy flows going through the market which has
pushed it to the new level," said Mitul Kotecha, head of FX
strategy at Calyon.
The euro was up 0.2 percent against the dollar at $1.5821
<EUR=>, having earlier topped at $1.5847 -- a level last seen in
late April. It was 0.3 percent firmer versus the Japanese
currency at 168.04 yen <EURJPY=>.
The dollar was little changed at 106.07 yen <JPY=>, but
slipped 0.1 percent to 72.290 <.DXY> against a basket of major
currencies.
On euro zone bond markets, two-year cash yields were up 4
basis points at 4.619 percent <EU2YT=RR> while 10-year Bunds
<EU10YT=RR> yielded 4.648 percent, around 3 basis points higher
than in late Tuesday trade.
