GLOBAL MARKETS-Uncertainty over ECB caps moves in shares, euro

Reuters

* European shares steady near 5-year highs

* Euro seen vulnerable to ECB policy easing

* Wall St set to open weaker as taper debate dominates

* Commodities supported by hopes of central bank liquidity

By Richard Hubbard

LONDON, Nov 5 (Reuters) - European shares halted gains justbelow five-year highs and the euro steadied near seven-week lowson Tuesday as uncertainty over the European Central Bank's nextpolicy move sapped investor enthusiasm.

U.S. stock index futures pointed to a weaker open, puttingthe S&P 500 on track to halt a two-day winning streak, astraders waited for factory data to shed light on when theFederal Reserve may trim its monetary stimulus.

Markets are on edge over the next moves by both centralbanks after a sharp drop in euro zone inflation opened the doorto a rate cut, while a run of mixed U.S. economic data castdoubt on the expected timing of the Fed's tapering.

In Europe investors remain split on how the ECB may decideto tackle what is set to be very subdued growth across theregion throughout 2014, according new European Commisionforecasts. [ID:nL5N0IQ1J7}

"I wouldn't be surprised if we get a rate cut, just to senda signal," said Markus Schomer, chief economist at fundmanager's PineBridge Investments.

"A rate cut could at least help in lowering the value of theeuro," Schomer said, adding that extending more ultra-cheaploans to banks would have greater impact.

But Koen Maes, global head of asset allocation at DexiaAsset Management said: "I don't think they will cut rates,because frankly it wouldn't change anything at this point interms of impact on the economic recovery."

The policy risks left the broad FTSEurofirst 300 index of top European shares slightly lower by midday by 0.2percent though only after it touched a level not seen sincemid-2008.

The euro traded just under $1.35 for most of themorning session, holding near a seven-week trough of $1.3442 seton Monday.

The prospect of both euro zone and U.S. central bankssupporting the global economy helped keep MSCI's world equityindex near its strongest level since 2008,easing just 0.1 percent.

CENTRAL BANKS RULE

Investors are now awaiting Friday's October non-farmpayrolls data to see if the unemployment rate eases from thecurrent 7.2 percent. Economists in a Reuters survey expect therate to have edged up. The Fed has promised to hold ratesultra-low at least until unemployment drops to 6.5 percent,provided inflation remains mild.

Before that, third-quarter gross domestic product data onThursday will help show how strong the momentum in the economywas before last month's partial government shutdown.

The heavy flow of data left the dollar index, whichmeasures the greenback against six major currencies, holdingjust above a nine-month low of 78.998 hit on Oct. 25.

However, against the Japanese currency, the dollar fellabout 0.3 percent to 98.25 yen following a reaffirmationby Japan's central bank on Monday that it would do everythingnecessary to reflate its economy. [ID:nL3N0IQ2IQ}

Only China now looks likely to buck the tend for moremonetary policy support. New Premier Li Keqiang said in a speechpublished in full late on Monday that adding extra stimuluswould be more difficult since printing new money would causeinflation.

Asian shares struggled as a result slippingabout 0.2 percent, though Japan's Nikkei stock average bounced off its lows and managed a 0.2 percent gain.

Australian shares bucked the downtrend to head backtoward last month's five-year high after the Reserve Bank ofAustralia kept its cash rate steady at a record low of 2.5percent as widely expected.

In commodity markets the ultra-loose monetary policyprospects helped gold hold firm at $1,314.50 an ounce.Copper added 0.1 percent to $7,158 a tonne.

Brent crude was slightly firmer at $106.36 a barrelbut close to the four-month low touched on Monday on worriesover a prolonged outage from key oil exporter Libya.

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