Euro eases as stock rally runs out of steam

SINGAPORE (Reuters) - Japanese shares fell and the euro stalled on Thursday as rallies driven by short covering in stocks and the single currency ran out of steam.

Oil, which has been tracking moves in the euro and stock markets, fell back from a six-week high, while gold, which tends to gain from falling share markets due to its safe haven appeal, firmed to near its highest in a week.

Japan's Nikkei share average <.N225> slipped 0.4 percent and MSCI's index of Asian shares outside Japan <.MIAPJ0000PUS> was flat, with falls in some markets offset by gains in Hong Kong <.HSI> and China <.SSEC>, which reopened after a 3-day holiday.

"There seems to be a double bottom forming in a number of global stock markets," said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities in Tokyo.

Such a technical pattern on price charts could indicate that stocks are poised to move higher, but investors remain wary after a sharp selloff in global financial markets since mid April.

U.S. stocks ended flat on Tuesday after mixed economic data and a cautious outlook from bellwether FedEx Corp .

But the S&P 500 <.SPX> held above its 200-day moving average, seen by many market players as a key momentum indicator, a day after breaking above that mark for the first time in a month.

"Essentially, the market has held on to yesterday's gains and you have to call that encouraging," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

World stock markets had been gaining for the best part of a week, partly on a technical rebound from heavy oversold levels in May and partly as many investors took a relatively positive view of the economy -- and hence corporate earnings prospects -- with the risk of a "double dip" recession seen as easing.

A Reuters poll published on Wednesday showed a continuing divergence in the expected rate of recovery among the world's richest nations, with Europe's debt crisis continuing to hamper economies across the continent.

The growth path for 2010 in the United States, the world's largest economy, has been revised higher, running away from the euro zone and Britain and also outstripping Japan, according to surveys of over 250 economists taken June 10-16.

EURO STUMBLES

A bigger-than-expected fall in U.S. housing starts among Wednesday's data pared gains in high yielding currencies such as the Australian dollar, which eased from a 1-month high.

The euro fell back from a two-week high to trade around $1.2275.

Though the single currency is up this week, the fact that it has failed to break convincingly through the $1.2350 mark could lead to a pull back in the near-term, traders said.

Still, many investors will adopt a wait-and-watch stance ahead of a raft of European bond auctions, notably from Spain, on Thursday.

This could be a litmus test for the euro after spreads of some of the peripheral economies widened over German Bunds, traders said.

"With a hectic period ahead for redemptions and the near-term event risk of the Spanish auctions on Thursday, we remain reluctant to view this as a trend reversal in the fortunes of the euro," JP Morgan said in a morning note.

EU leaders will meet on Thursday to review the findings of a task force set up to look at reforms designed to prevent a repeat of the euro zone debt crisis. They will also discuss the creation of a permanent aid mechanism for countries in debt trouble.

The leaders have agreed on a 500-million-euro ($617.2- million) safety net to help struggling countries that use the euro and a 110-billion-euro aid mechanism for Greece. But despite repeated denials, they have not allayed concern that Spain will follow Greece by seeking financial help.

U.S. crude futures fell 0.7 percent to $77.11 a barrel, as investors took profits from a six-week high hit a day earlier.

Oil has rebounded from the 2010 low of $64.24 on May 20. The S&P 500 index rose above its 200-day moving average on Tuesday, helping push NYMEX crude above its own 200-day moving average.

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