Spanish, Greek worries hold euro, shares in check

LONDON (Reuters) - European shares and the euro were little changed on Tuesday as reports of official preparations for a possible Greek exit from the euro zone and rising skepticism over the Spanish bank bailout plan curbed demand for riskier assets.

However, investors were closely watching Italian and Spanish government bond yields, which were edging up on worries that the 100 billion euros ($125 billion) lent to Spain to recapitalize its banks might worsen the country's debt problems.

Spain's 10-year bond yields were up 10 basis points at 6.63 percent, while Italy's equivalent yields rose 11 basis points to 6.15 percent.

"There is a lot of nervousness," said Ben Hauzenberger, fund manager at Zurich-based Swisscanto Asset Management.

"(Spain's bank bailout) is a step in the right direction, but one can't rule out that more injections will be needed. Also, people don't know what the outcome of the elections in Greece would be."

Concerns that the Greek election on June 17 would return parties opposed to its current bailout plan and force a disorderly exit from the euro zone were rekindled by a report that EU officials were considering ways to manage the fallout.

European finance officials told Reuters they had discussed ideas such as limiting ATM withdrawals and imposing tougher border checks on Greece as part of contingency planning for a worst-case scenario.

PRICE MOVES LIMITED

After a roller-coaster ride in risk asset markets on Monday, the euro was virtually unchanged at $1.2475, while Brent crude oil slipped below $98 a barrel and gold edged down to $1,590.60 an ounce.

"The 'risk on' trade is over as investors look to the Greek elections and Italy," said Jeff Sica, president of SICA Wealth Management.

MSCI's world equity index was down 0.2 percent at 299.14 after ending 0.2 percent lower on Monday, while the FTSE Eurofirst 300 index of top European shares was up 0.1 percent at 984.38 points. The index had hit its highest since mid-May in the previous session.

A weak session in Asia earlier helped send MSCI's Emerging Markets Index down 0.7 percent to 904.06.

The growing impact of the euro zone crisis on the economic outlook was underlined by data showing a surprise fall in British manufacturing output in April.

"The manufacturing figures are very disappointing and highlight the pressure the sector's under given the gravity of the debt crisis in the euro area, but also the lack of confidence at home," said Philip Shaw, Chief Economist at Investec.

The darkening economic outlook pulled Brent as low as $96.62 a barrel - close to the 2012 low of $95.63 struck on June 4 - before it recovered to around $97.64.

Gold hovered around $1,600 an ounce as traders in the precious metal pinned their hopes on more stimulus from the U.S. Federal Reserve at its meeting next week, which would likely attract investors concerned by the threat of higher inflation.

($1 = 0.7993 euros)

(Reporting by Richard Hubbard; Editing by Will Waterman)