* Markets wary after last week's volatility
* Nikkei down 3 pct but above 50-day moving average
* Euro shares inch up; UK, U.S. markets closed for holidays
* Oil dips back towards $102 a barrel
By Marc Jones
LONDON, May 27 (Reuters) - European stocks, bonds and the
dollar traded more calmly on Monday after last week's
turbulence, though another 3 percent dive in Japan's main share
index kept investors on edge.
UK and U.S. holidays kept European equity and bond markets
quieter than usual, but with last week's falls tempting buyers,
the Euro STOXX 50 was up 0.8 percent and Italian and
Spanish bonds eyeing their first gains in three sessions.
The dollar was also steadier, though it slid back to
101 against the yen as the latest lurch in Japanese
equities encouraged investors who have been unwinding their
dollar hedges on share portfolios and heading for bonds.
The 3.2 percent drop on Tokyo's Nikkei brought its
losses since Thursday to more than 10 percent, although the
index is still up 35 percent this year.
Last week's shakeout of equity, bond and currency markets
was triggered by concerns the U.S. Federal Reserve could wind in
its monetary support sooner than had been expected, weak Chinese
data, and doubts over how low Japan will allow the yen to go.
But despite the wobble, analysts largely foresee a period of
moderation in risk assets, rather than a big correction.
"The transition to a post U.S. QE (quantitative easing)
world will be turbulent," said J.P. Morgan global strategist Dan
Morris. "But with fundamental drivers for equities still
supportive, investors should tighten their seatbelts instead of
reaching for the parachute."
CHILLY TO SUB-ZERO
Whereas the Fed appears to be eyeing an exit from its crisis
measures, the European Central Bank may still have some scope to
counter a long-running euro zone recession triggered largely by
efforts to contain the bloc's sovereign debt crisis.
On Wednesday, the European Commission will release its
review of countries' debt-cutting policies, which will confirm
that the likes of France, Spain and Slovenia are to be given
more time to trim their budget deficits to target. The
Organisation for Economic Co-operation and Development will
publish a review of major economies on the same day.
Three Italian government bond auctions this week will also
test demand after the talk of Fed stimulus withdrawal.
Italian and Spanish bonds were
caught in the sell-off in risk assets last week but yields on
both have eased back as focus turns to the ECB's next step.
Policymaker Joerg Asmussen said the bank would remain
accommodative "as long as needed" although he sounded cautious
about charging banks to put money on deposit at the ECB,
something that could help hold down national borrowing costs.
"One should be very cautious regarding the discussion if the
ECB could introduce negative deposit rates ... This can have
advantages, but it can also have disadvantages," Asmussen said
in a speech in Berlin.
The mood was once again cautious in the commodities markets.
Brent crude slipped towards $102 per barrel, extending
last week's 2 percent drop, as the patchy economic outlook in a
well-supplied market pressured prices.
The broader market nerves also helped safe-haven gold
firm to $1394.39 an ounce as it built on last week's best run in
a month, while growth-attuned copper fell 0.2 percent.
After disappointing data from China last week dimmed the
outlook for global oil demand, oil producer cartel OPEC is
expected to keep policy unchanged at a meeting on Friday.
The shale revolution in the United States, still the biggest
oil consumer, may even bring an end to the relentless rise in
fuel prices seen over the past decade.
"OPEC is in a hard situation," said Chakib Khelil, Algeria's
oil minister from 1999 to 2010. "The demand for OPEC oil is
going down, while increasing demand is being met by others..."