World stocks limp towards quarter end

World stocks slipped and core government bonds steadied on Wednesday as investors trimmed positions before the end of a first quarter that has seen abundant central bank liquidity and improving U.S. economic data buoy a range of assets.

Such shifts were also evident in foreign exchange markets, where the yen's slippage against the dollar was accentuated by Japanese exporters' sales of foreign currency before the March 31 end to Japan's fiscal year.

While European stocks fought a losing battle to stay in positive territory, futures indicated that U.S. stocks would open higher.

With comments this week by Federal Reserve Chairman Ben Bernanke keeping alive speculation about further U.S. monetary stimulus, analysts predicted U.S. data would be a focal point.

"The focus remains on growth indicators," said Lauren Rosborough, currency strategist at Societe Generale.

"To the extent that Bernanke has raised the ante on U.S. growth indicators, U.S. durable goods orders due for release this afternoon will be the market's focus."

The consensus in a Reuters poll is for a 2.0% rise in durable goods orders in February, excluding the volatile air and defence components.

MSCI's main global stock index eased to 335.75, retreating from an eight-month high of 338.28 touched on Tuesday. The pan-European FTSEurofirst 300 index fell 0.1% to 1,082.57 but was still on track for a fourth straight month of gains.

Fund managers said the European index, which has jumped about 8 percent in the year to date and is on track for its best first-quarter performance since 1998, could struggle in the short term.

"The performance of equity markets has been phenomenal this quarter, which makes me believe that upside will be limited in the next few days," Lex van Dam, hedge fund manager at Hampstead Capital, which manages USD 500 million of assets, said.

A rise in euro zone money supply growth and a steadying of loans to the private sector had lent some support earlier in European trading.

Debt test 

With a sale of medium-term Italian debt the next test of investor demand for peripheral euro zone debt, the German Bund future was little changed on the day at 137.39.

Italian and Spanish 10-year yields each slipped a few basis points, to 5.08%and 5.31% respectively, as investors positioned for quarter-end.

"Italy saw quite a big sell-off yesterday by recent standards," Nick Stamenkovic, strategist at RIA Capital Markets said, adding it could be a correction.

"It will be difficult for Italian bonds to rally ahead of the auction tomorrow and while uncertainty persists over the outcome of the labor market reforms which have still to be passed through parliament."

Italian six-month borrowing costs fell further towards 1% on Wednesday, marking their lowest level since September 2010, as a bill auction drew good demand ahead of Thursday's sale.

Italy, whose bonds were the euro zone's weakest performers on Tuesday after an auction of inflation-linked debt, is due to sell five- and 10-year bonds on Thursday.

"I think already the impact of the LTRO is beginning to wane," said one trader, referring to the European Central Bank's ultra-cheap three-year loans to banks, which have helped bring down borrowing costs for Italy and Spain this year.

"I think we are waiting for the next blow-up.  I think Europe is massively complacent in thinking they have solved everything."

Spain and the European Commission denied media reports on Tuesday that Brussels had told the Madrid government to take an EU-led bailout to refinance the country's troubled banks.

Yen Rise 

The yen rose broadly, helped by seasonal buying from Japanese exporters ahead of the end of their financial year, although rising short positions against the dollar left it open to another squeeze.

"I still think the big driver for dollar/yen will be U.S. rate expectations. The Fed's Bernanke has given a strong signal that rates will stay low for some time to come so the upside potential for dollar/yen is limited," said Ian Stannard, head of European FX strategy at Morgan Stanley.

The dollar fell by a quarter of a percentage point to 82.97 yen, while the euro was steady at 110.85 yen, staying below the 4-1/2-month high of 111.43 scaled last week.

European regional benchmark Brent crude prices fell 1% to USD 124.47 a barrel, on the possibility of a release of strategic oil reserves.

Copper slipped 0.6% to USD 8,440.25 a tonne as commodity investors took a cautious stance before the release of the U.S. durable goods data.