By Jeremy Gaunt, European Investment Correspondent
LONDON, May 13 (Reuters) - European stocks fell and Wall
Street looked set for some losses on Wednesday with investors
fretting about banks and the global economy.
The U.S. dollar rebounded from an earlier four-month low.
Sterling fell after the Bank of England said the UK economy will
recover more slowly than previously thought.
World stocks as measured by MSCI <MIWD00000PUS> lost 0.4
percent for a third consecutive day of weakness.
Investors have been buoyed recently by signs that global
economic decline may at the least be troughing. But some are
seeking more proof.
"Expectations are up slightly, and people are looking for
signs that there's some real improvement, not just levelling at
the bottom," said Rick Meckler, president of investment firm
LibertyView Capital Management in New Jersey.
"The definition of 'better than expected' has been changing
from not being horrible to actually showing some real
improvement," he said.
The pan-European FTSEurofirst <.FTEU3) was down 1.6 percent,
dragged lower by banking and mining stocks.
Japan's Nikkei <>, however, earlier gained 0.45
percent.
Analysts said that despite profit-taking this week, market
sentiment has improved.
In one indication of this, the CBOE Volatility Index <.VIX>,
the implied volatility measure of the S&P 500 index <.SPX>,
posted its lowest level since late September.
DOLLAR REBOUNDS
The dollar rebounded from a four-month low, rallying against
sterling after the Bank of England said UK inflation would be
anaemic and that growth has as much chance of being positive
over the next 12 months as it has of being negative.
The U.S. currency had earlier fallen to fresh lows after an
article in the Financial Times flagged the risk of the United
States losing its top sovereign credit rating.
But the BoE report and subsequent comments from Governor
Mervyn King triggered a rebound.
Sterling <GBP=D4> was down 0.8 percent on the day at
$1.5148, nearly two cents from levels just before the BoE report
was published.
The dollar index <.DXY>, which measures its performance
against a basket of six currencies, was up 0.2 percent on the
day at 82.51, having earlier hit a four-month low of 81.871.
On euro zone government bonds markets, yields were lower.
The 10-year Bund yielded 3.372 percent <EU10YT=RR>, while the
2-year Schatz yield was at 1.317 percent <EU2YT=RR>.
(Additional reporting by Edward Krudy, editing by Mike Peacock
and Andy Bruce)
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