* ECB and BOE meetings eyed for signs of future easing
* Dollar index at 6-1/2 month highs as recovery strengthens
* European shares inch higher, close to 4-1/2 yr highs
* Spanish bond auction to test debt market sentiment
By Richard Hubbard
LONDON, March 7 (Reuters) - European shares edged higher and
the euro hovered near three-month lows against the dollar on
Thursday on expectations the European Central Bank could point
to future policy easing after its rate-setting meeting later.
The British pound was also weaker against the dollar,
touching a fresh 2-1/2-year low of $1.4965, with
markets expecting the Bank of England to announce more monetary
stimulus when its policy meeting ends at 1200 GMT.
Looser policy prospects from two major world central banks,
along with signs Japan is about to step up aggressive monetary
easing, is contrasting with changes in the outlook for the U.S.
Federal Reserve, as signs of economic recovery grow.
"The reality is that the Fed is still pumping in $85 billion
a month at the moment, whereas the ECB and the BoE aren't,"
said Daragh Maher, currency strategist at HSBC.
"But the data has forced the idea that the U.S. economy is
improving and therefore, going forward, the direction of policy
The dollar is close to its highest level in 6-1/2 months
against a basket of major currencies as jobs data this
week has pointed to a recovery in the labour market, a key
condition for the Fed to wind up its massive stimulus programme.
With market players focused on the strength of the U.S.
economy, the dollar was seen drawing further support from signs
Congress is about to pass a measure to keep funding government
spending until the end of September.
Meanwhile, the expected support from the ECB helped lift the
pan-European FTSEurofirst 300 share index 0.1 percent
to 1,187.61 points in early trade, near the 4-1/2 year intraday
high of 1,193.35 points hit on Wednesday.
Frankfurt's DAX, London's FTSE 100 and
Paris's CAC-40 were between 0.2 and 0.4 percent higher.
The euro was slightly firmer in early European business at
around $1.3010, after sliding to $1.2994 earlier, within
sight of its December trough of $1.2876.
In the bond market attention was on a Spanish debt auction
for up to 5 billion euros of new debt, which was expected to
find decent demand despite worries among investors about the
impact of the political deadlock in Italy.
German Bund futures were little changed on the day
at 145.14, but the contract could gain if ECB President Mario
Draghi turns out to be more downbeat on the euro zone's
prospects than expected.