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World shares hover near all-time high

By Marc Jones

LONDON (Reuters) - World shares hovered just off an all-time high and the euro was steady on Tuesday, as the European Central Bank made sure there was little doubt in investors minds that global liquidity will continue.

Britain's FTSE 100 opened up 0.3 percent as it played catch-up after a holiday. The rest of Europe's main bourses, which saw mostly steady starts, had made gains on Monday following European election results.

Asian trading had been timid too, but another solid session for Japan's Nikkei and shares in China, nudged MSCI's 45-country all-world index up to 420 points leaving it just below its 2007 record high of 428.63 points.

Asset markets around the world continue to be supported by record-low interest rates in most of the world's big economies.

ECB chief Mario Draghi on Monday bolstered the already-strong expectation that the bank will cut euro zone interest rates again next week and dip back into its unconventional policy cupboard.

Draghi said the ECB needed to be "particularly watchful" for any negative price spiral in the euro zone, and that "more pre-emptive action may be warranted," citing broad-based asset purchases as one of the ultimate options.

He is set speak again later in an 'armchair' discussion in the final day of the ECB forum underway in Portugal, along with a handful of the bank's other policymakers.

The easing expectations kept plenty of downward pressure on euro zone government borrowing costs in the region's buoyant bond markets.

Interest rates on benchmark 10-year German Bunds hovered at 1.358 percent, while Italian bonds consolidated gains they had made on Monday after its government scored a surprisingly easy win in European Parliament elections over the anti-establishment 5-Star Movement of former comic Beppe Grillo.

In the currency market, the dollar fell 0.2 percent against a basket of currencies, extending weakness since the end of last week after another retreat in U.S. bond yields.

The euro was at an unchanged $1.3645, with the softer dollar keeping it above its recent three-month lows.

London-based analysts and traders said another big batch of U.S. numbers were the best bet for a bigger market move on Tuesday after a tight few days of trading, thinned out by U.S. and UK holiday weekends.

"The dollar continues to struggle, and you can see that in the U.S. rate curve and rate differentials which haven't moved in the dollar’s favour," said Stephen Gallo, European head of FX strategy with BMO in London.


Another flurry of merger activity provided additional support for European shares.

Intercontinental Hotels Group jumped 5.2 percent, the top performer on the pan-European FTSEurofirst 300, buoyed by British media reports of bid interest from the United States.

Investors kept a wary eye on Ukraine, which launched air strikes and a paratrooper assault against pro-Russian rebels who seized an airport on Monday.

The escalation in the ongoing crisis was tempered by the decisive win for billionaire Petro Poroshenko in Ukraine's weekend presidential election, which many hope will help bring some stability to the situation.

In commodities trading, three-month copper on the London Metal Exchange edged to its highest in nearly three months as markets reopened after a holiday weekend.

U.S. crude futures were up about 0.1 percent at $104.48 a barrel. Spot gold was a touch lower at $1,288.65 an ounce.

(Additional reporting by Lisa Twaronite in Tokyo and Patrick Graham in London Editing by Jeremy Gaunt.)