* World shares flat, Wall Street set for mild losses
* Chinese data disappoints, lifting yen
* Dollar lower with eyes on this week's Fed meeting
By Jeremy Gaunt, European Investment Correspondent
LONDON, Aug 11 (Reuters) - World stocks were flat on Tuesday
with Wall Street looking at a soft opening and Europe sliding in
typically thin August trade.
Japan's Nikkei earlier hit a 10-month closing high despite
disappointing Chinese data that drove up the yen.
The dollar was lower across the board, a break from recent
trends in which it has risen on bearish economic news.
China's industrial output grew at the fastest rate in nine
months in July but fell short of expectations, disappointing
some in the market.
One result was that currency dealers unwound some trades
that had favoured high-yielding currencies such as the
Australian and New Zealand dollars.
This lifted the yen across the board, but failed to dent
sentiment on Japan's bourse. The Nikkei <> rose 0.6 percent
or 61.20 points to 10,585.46, its highest finish since Oct. 3.
The generally upbeat equities mood carried over into Europe
at first, but later dissipated. The pan-European FTSEurofirst
300 <> index of top shares was down 0.2 percent.
Trading was generally muted because of the northern
hemisphere's summer lull.
"The market is keeping a low profile at the moment," said
Postbank equity strategist Heinz-Gerd Sonnenschein.
The MSCI-all-country world index <.MIWD00000PUS>, the global
benchmark for many investors, was flat. It has gained nearly 19
percent this year and is up around 58 percent since hitting a
low in March. This has investors divided about whether a bull
market is in the making or whether bourses are heading for a
fall.
"We do have concerns about the sustainability of the rally,
but we would also point out that valuation measures remain
attractive and that there is still a large amount of cash on the
sidelines waiting to be invested," Bob Doll, global chief
investment officer for equities at BlackRock, said in a note.
"As a result, we believe the current cyclical bull market
remains intact."
DOLLAR DOWN
The dollar was down around 0.3 percent against a basket of
major currencies <.DXY> primarily as a result of the euro
gaining 0.3 percent to $1.4183 <EUR=> and the yen rising nearly
two thirds of a percent to 96.36 yen <JPY=>.
Currency traders are also looking ahead of the end of the
Federal Reserve's two-day policy meeting on Wednesday.
After better than expected U.S. jobs data last week and a
sharp rise in the dollar, the market has been trying to
ascertain whether the rising risk appetite-falling dollar
dynamic which has held for much of this year has started to
crumble.
The market has even begun to price in tightening by the
Federal Reserve early in 2010.
"Whether a paradigm shift is taking place with regards to a
loosening in correlation between risk aversion and the U.S.
dollar is still too early to call," said Jonathan Cavenagh, a
currency strategist at Westpac, Sydney.
Euro zone government bond yields were mixed. The two-year
Schatz yield <EU2YT=RR> was at 1.504 percent and the 10-year
<EU10YT=RR> at 3.487 percent.
(Additional reporting by Charlotte Cooper and Christoph Steitz;
editing by Chris Pizzey)
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