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By Richard Hubbard
LONDON (Reuters) - A three-day rally on world equity markets ended on Wednesday and the euro fell as doubts grew over the prospects for early action by major central banks to tackle declining global economic growth and Europe's fiscal crisis.
U.S. stocks futures also pointed to a weak start to trading on Wall Street.
Risky assets began rising on Friday after U.S. jobs data eased concerns about global growth while supporting hopes of a further policy easing by the Federal Reserve. Last week's signal by European Central Bank President Mario Draghi that it may ease borrowing costs for Spain and Italy provided further support.
But after the Bank of England gave no hint of future action in the UK despite slashing its growth forecast, and investors snapped up a sale of safe-haven German bonds, riskier assets like oil, gold and European shares all shed some of their gains.
"Sentiment is still broadly cautious - people realise there are still a lot of hurdles to be overcome. But investors can't ignore potential stimulus from central banks and what impact that's had on stock markets in the past," said Keith Bowman, equity analyst at Hargreaves Lansdown.
The UK central bank said it did not expect Britain's recession-hit economy to see much growth at all this year despite all its efforts to pump in cash, but it remained equivocal on whether further measures were likely.
Though he did not completely rule out the possibility of cutting rates in the coming months, Bank of England governor Mervyn King said another quarter point rate cut was "neither here nor there".
Investors had hoped the Bank would point to an easing in policy later in the year as the gloomy contents of its quarterly economic outlook had been widely anticipated.
France's central bank said the French economy was likely to slip into recession in the third quarter, suggesting the 2 trillion euro economy may struggle to meet the government's forecast of 0.3 percent growth this year.
The Chinese central bank is next to face the spotlight with a batch of key economic data due on Thursday likely to draw attention to the nation's cooling growth rate.
ECB HOPES DIM
European shares, which have taken off since Draghi first signalled a more interventionist stance to defend the euro two weeks ago, eased on Wednesday but remain near four-month highs.
The FTSEurofirst 300 index of top European shares was down 0.3 percent at 1,090.52 after logging its highest closing level since March 19 on Tuesday.
Since Draghi's comment that he was prepared to do whatever it took to defend the single currency, the UK's FTSE 100 index has gained about 6.2 percent, Germany's DAX has surged 8.8 percent and the French CAC index has soared 12 percent.
Standard Chartered Bank, under fire from accusations it violated U.S. laws by hiding $250 billion in transactions tied to Iran, clawed back some of its huge losses, to be up 7.5 percent.
The British bank's shares dived 16.4 percent on Tuesday in hefty volume after the accusations by New York's top bank regulator, which also threatened to revoke the group's state banking licence.
MSCI's world equity index shed about 0.15 percent to 321.90 points for its first down day this week.
MARKETS TURN WARY
The euro, which has also bounded higher since Draghi's comments, was down 0.35 percent at $1.2360, turning lower after the recent gains took it to a one-month high of $1.2444.
Investors were looking for more details of the ECB's latest proposal to tackle the three year-old debt crisis that has threatened the survival of the 17-nation currency bloc.
So far Draghi has said the bank may buy the short-term bonds of euro zone nations battling with rising yields on their debt, but that any action had to be in conjunction with the euro zone's bailout funds and under strict conditions.
"We think there will be a reality check in time," said Sarah Hewin, senior economist at Standard Chartered Bank in London. "Any action from the ECB is really reliant upon euro area governments first taking action. And indeed countries that require assistance will have to ask for a bailout, so there are many steps before you get to the ECB moving in to buy bonds."
GERMAN DEBT DEMAND
In the debt market, Germany's sale of 3.4 billion euros of 10-year government bonds attracted more demand than a similar auction last month, indicating investors' appetite for safe haven assets hasn't diminished much since Draghi's statements.
The Bund auction drew bids of 1.8 times the amount allotted, compared with 1.5 at an auction on July 11. After the sale 10-year German bond yields were 4 basis points lower at 1.43 percent, up from a record low of 1.126 percent in July.
Bund prices were also support by a media report quoting a member of Chancellor Angela Merkel's Christian Democrats party as saying Germany will not back more financial aid for Greece.
Ten-year Spanish government bond yields were up 7.5 basis points to 6.97 and close to the 7 percent danger level, beyond which funding costs are perceived to be unaffordable in the long run. Equivalent Italian yields were barely changed at 5.96 percent.
In the oil markets Brent crude slipped off a 12-week high due to the dimming hopes for more economic stimulus measures on both sides of the Atlantic in the coming weeks.
Brent crude futures for September dipped 70 cents to around $111.30 a barrel but remain at an elevated level. U.S. crude was down 60 cents at $93.07.
But Brent has risen more than 25 percent since the end of June and hit $112.56 on Tuesday, its highest since mid-May, and analysts say the trend is higher.
"The oil market is looking for reasons to be bullish," said Eugen Weinberg, global head of commodities research at Germany's Commerzbank in Frankfurt.
"Risk appetite is back and I wouldn't be surprised if this rally continues for a while," he said.
(Additional reporting by Tricia Wright.; Editing by David Stamp and Philippa Fletcher)