* World shares dip, European markets steady
* Caution grows ahead of U.S. GDP, payrolls reports
* Euro holds near 11-month high at $1.3435
* Gold languishes at two-week lows, oil above $113
By Richard Hubbard and Marc Jones
LONDON, Jan 28 (Reuters) - World shares dipped on Monday and
oil prices steadied due to investors' caution on whether the
strength of the global economic recovery justifies the sharp
rally so far this year.
U.S. stock index futures pointed to a similarly flat session
on Wall Street, with traders reluctant to extend a rally that
has taken the benchmark Standard and Poor's 500 index to
its highest level in over five years.
The wariness is in anticipation of a series of significant
U.S. economic events this week, including the initial estimate
of fourth quarter GDP, the Federal Reserve's first policy
meeting of the year and the January payrolls data.
"Markets don't go up in a straight line," said Garry Evans,
global head of equity strategy at HSBC. "I think that people are
realising there could still be problems out there."
Adding to the potential pitfalls ahead were signs from
Washington that the $1.2 trillion in automatic spending cuts due
to take effect by March 1 could go ahead, threatening a hit to
confidence in the giant U.S. economy.
MSCI's benchmark world share index was down
0.1 percent on Monday, though it has gained nearly 4.5 percent
this month on signs of economic recovery in the United States,
stabilisation in the euro zone and accelerating growth in China.
European stocks were unchanged, with the broad FTSEurofirst
300 index of top company shares hovering just under a
The market's softer tone also followed a weaker session in
Asia, where falls in technology companies saw the MSCI's
broadest index of Asia-Pacific shares outside Japan
drop 0.4 percent.
EUROPEAN ECONOMY FLAT
Data from the European Central Bank gave another reminder
that the recent surge in financial markets is not being matched
in the real economy.
Lending by banks to euro zone companies, consumers and home
buyers contracted in December for the eighth month running as
recessions across much of the region sap the appetite to borrow
and banks' willingness to lend.
"As of the end of 2012, there was no sign of improvement in
credit flows," said Marie Diron, an economist who works on Ernst
& Young's euro zone forecasts. "However, we think that during
2013, with a much more secure economic environment than last
year, banks will start easing credit standards somewhat, and
companies will be more willing to borrow to invest in the euro
Data showing inflows to global equity funds had slowed in
the past week, and comments from several major investment banks
noting signs that the market may be reaching a natural top added
to the caution.
Among the warning signs was Citigroup's U.S. Economic
Surprise Indicator, which tracks how new data compares with
expectations. This has turned negative, while the
survey by the American Association of Individual Investors
(AAII) remains in the top 5 percent of its observed readings.
JP Morgan said in a note that historical data for each of
these readings shows they are normally followed by lacklustre
The euro was down 0.2 percent against the dollar at $1.3435
, slipping from an 11-month high of $1.3480 hit on Friday.
The euro rallied on Friday after data showed European banks
plan to repay more than expected of the loans they borrowed from
the European Central Bank during the debt crisis.
The early repayments mean the ECB is the first major central
bank to start moving away from unconventional monetary policy
measures, unlike the U.S. Federal Reserve and Bank of Japan,
which are buying bonds to stimulate growth. More stimulus
usually weighs down on a currency as it increases its supply.
"There is still some room for euro to go higher, but the
road upwards will be characterised by bumps, pauses and even by
corrections," said Ulrich Leuchtmann, head of FX research at
The dollar was down 0.2 percent against the yen at 90.70 yen
, though the Japanese currency is expected to remain weak
on expectations that Japan's government will keep pushing for
aggressive monetary easing, whereas the Fed's view could change
if the economic recovery strengthens.
In commodity markets oil prices steadied near a
three-month high at just over $113 a barrel before the Fed
meeting on Tuesday and Wednesday and the employment data on
Friday that should show more signs of recovery in the world's
biggest oil consumer.
Other commodities also rose on evidence that the world's
number two economy China is now picking up pace, along with
optimism that the euro zone is past the worst, Japan's efforts
to revive its stagnant economy and the signs of U.S. growth.
Growth-attuned palladium rose to $741.75 an ounce, its
highest since September 2011, leading climbs by platinum and
copper, while traditional safe-haven gold struggled near
a two-week low.
"China's economic growth could be over 8 percent this year.
China's economy supports a very large part of global demand,"
Lou Jiwei, chairman of the country's sovereign wealth fund said
over the weekend.