European stocks fall on Greece; dollar rebounds

LONDON (Reuters) - European shares fell on Monday, weighed down by worries over a looming cash crunch in Greece, while the dollar rebounded after concern over the U.S. economy drove the currency to four-month lows on Friday.

Oil prices rose after Islamic State militants said they had seized the Iraqi city of Ramadi, though analysts said the market remained oversupplied.

Wall Street looked set to open lower, according to index futures , and the pan-European FTSEurofirst 300 stocks index <.FTEU3> gave up early gains, shedding 0.6 percent.

In Europe, factors including lacklustre energy sector earnings, volatile financial shares and Greece's precarious finances sapped positive sentiment.

Italian shares fell 1.9 percent, led lower by a 2 percent drop in bank Monte dei Paschi ahead of a plan to sell new shares starting next week.

The Athens bourse <.ATG> was down 0.9 percent.

"Greece is running on fumes and the risk of non-payment of some form is riding high ... These are desperate times and desperate stakes," Rabobank fixed income strategist Richard McGuire said.

Greek two-year sovereign bond yields rose nearly 300 bps to just shy of 24 percent as investors worried the country would be unable to make a debt repayment to the International Monetary Fund next month.

A Greek government spokesman said Athens needed an agreement with creditors by the end of the month.

Asian shares had earlier mostly fallen as investors fretted that weak U.S. data on Friday suggested growth was slowing in the world's largest economy.

MSCI's index of Asia-Pacific shares, excluding Japan, <..MIAPJ0000PUS> fell 0.7 percent. Tokyo's Nikkei <.N225> rose 0.8 percent.

The dollar rose 0.4 percent against a basket of currencies <.DXY>. It had lifted off a four-month low hit on Friday after U.S. industrial production fell for a fifth straight month in April and consumer confidence declined more than expected.

INFLATION

U.S. inflation data, due on Friday, could be an important influence on the timing of the first Federal Reserve interest rate increase since 2006.

The euro , which touched its highest since early February on Friday, was down 0.4 percent at $1.1408.

"Short term, I think we go to $1.1350 today and, if the U.S. inflation numbers are better than expected at the end of the week, we could push on to as low as $1.1250," said Adam Myers, Head of European FX strategy at Credit Agricole in London.

Data from the Commodity Futures Trading Commission released on Friday showed speculators further pared their bullish dollar bets in the week ended May 12, to their lowest in nine months.

U.S. Treasury yields, which fell after Friday's data, rose on Monday. Ten-year yields were up 2.2 basis points at 2.16 percent.

German 10-year yields were steady at 0.65 percent.

Brent crude added 50 cents to $67.32 a barrel.

Gold hit its highest since February in reaction to the U.S. data before pulling back to $1,226.20.

(Additional reporting by Hideyuki Sano in Tokyo, Patrick Graham, John Geddie and Atul Prakash in London; Editing by Larry King and John Stonestreet)

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