By Lionel Laurent
LONDON, Oct 26 (Reuters) - European shares fell in early
trading on Monday as euphoria about the prospect of further
central bank policy easing faded, with investors warning against
over-confidence ahead of another week of interest rate
decisions.
Comments on Monday from a key economic adviser to Prime
Minister Shinzo Abe, who said the Bank of Japan did not need to
boost its monetary stimulus as early as this week, have tempered
expectations that Friday's policy review will see new action.
The monthly Ifo survey of German business morale dipped in
October but beat forecasts, suggesting Europe's largest economy
remains resilient in the face of a slowdown in emerging markets
and the emissions scandal at carmaker Volkswagen (DE:VOWG) VOWG_p.DE .
Corporate expectations over a half-year horizon hit a
seven-month high, suggesting many firms believe they can cope
with the economic headwinds.
"We have had a pretty good rally in risk assets since the
beginning of October ... Clients have only really got two or
three more weeks to do anything before year-end and they are not
going to take big positions going into December," said Sean
Darby, a strategist at Jefferies.
"On Japan, people also may have read too much into the
possible crossover from the ECB."
Bets that Japan's already massive stimulus would be
increased had risen after China's cut interest rates last week
and the European Central Bank indicated it may add to its asset
purchase programme in December. The U.S. Federal Reserve, which
also meets this week, is also increasingly seen delaying its
first rate increase for nearly a decade until next year.
Global equities, which have rebounded 10 percent from the
depths of September's sell-off, were broadly flat on Monday,
with the pan-European FTSEurofirst 300 .FTEU3 index down 0.3
percent. MSCI's index of Asia-Pacific shares outside Japan
edging up 0.1 percent.
Poland's benchmark equity index .WIG20 reversed early
falls and rose 0.5 percent after the main opposition party Law
and Justice won weekend parliamentary elections. The party
confirmed its plan to introduce a banking tax as of January
2016, which hit bank stocks like PKO BP (L:BP) PKO.WA and mBank
MBK.WA .
There were some mixed updates from earnings season. French
carmaker Peugeot PEUP.PA fell 2.4 percent after a trading
update and Philips PHG.AS slid more than 1 percent after
warning that the sale of its Lumileds division was in doubt.
The prospect of more central bank cash was seen supporting
bond markets, with Italian and Spanish bond yields at nearly
their lowest levels in half a year on expectations additional
ECB stimulus will lift lower-rated euro zone bonds. German Bund
yields hovered just above 0.50 percent.
There was little respite for commodities, with crude oil
prices remaining weak as a slowing demand outlook implied
oversupply would remain in place for months.
Iron ore futures in China and Singapore ticked lower amid
pressure from a weak steel market, though copper prices edged
higher.
(Editing by Catherine Evans and Nigel Stephenson)