* Italian banks lead Europe shares higher
* Asia shares gain, investors eye central bank meetings
* Euro dips, yen gains vs dollar
* Brent crude drops below $40 a barrel
By Nigel Stephenson
LONDON, March 14 (Reuters) - European shares followed Asian
stocks higher on Monday, adding to gains chalked up after last
week's stimulus package from the European Central Bank, while
oil prices fell as Iran dashed prospects of a quick deal to
freeze output.
Index futures ESc1 1YMc1 suggested Wall Street would
open lower, however, pulling back after the Dow Jones Industrial
Average .DJI and the S&P 500 .SPX stock indexes hit their
highest closes of 2016 on Friday.
After the ECB cut interest rates, extended its
asset-purchase programme and pledged new cheap loans for banks
last Thursday, attention switches this week to policy decisions
from the Bank of Japan (BOJ), the U.S. Federal Reserve, the Bank
of England and the Swiss National Bank, among others.
The pan-European FTSEurofirst 300 .FTEU3 stocks index rose
0.8 percent, led higher by Italian banks. Shares fell on
Thursday after ECB President Mario Draghi said interest rates
were unlikely to be cut further but rose the following day as
investors focused on the new loans for banks.
"We believe there is enough value in the sector for
continued performance on central bank stimulus - with peripheral
banks likely to lead the way," said RBC Europe analyst Robert
Noble.
In Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan .MIAPJ0000PUS rose 0.8 percent, while Japan's
Nikkei stock index .N225 added 1.7 percent.
The BOJ began a two-day policy meeting on Monday and was
expected to keep policy unchanged after adopting negative
interest rates in late January.
In China, the CSI300 stocks index .CSI300 closed 1.6
percent higher and the Shanghai Composite rose 1.8 percent.
Mainland investors were encouraged by a regulator's
assurance it was premature to consider withdrawing government
bailout funds from the market, and comments that dispelled fears
of a flood of initial public offerings.
The Fed, which ends its policy meeting on Wednesday, has
said it is on track to raise rates gradually in 2016, but this
will hinge on the health of the economy. Recent data has shown
above-forecast jobs creation but wage growth remains a concern.
The euro EUR= , which rose after Draghi signalled yet lower
rates were unlikely, fell 0.4 percent on Monday to $1.1111,
having set a one-month high of $1.1218 on Thursday. The yen
JPY= strengthened 0.1 percent to 113.68 per dollar. Sterling
GBP= fell 0.4 percent to $1.4336.
"The (Fed) meeting could see an acknowledgement of slightly
improved conditions ... the Fed wants to make sure these
developments have taken hold before acting. Such a dovish
message could see downward pressure on the dollar," said Josh
O'Byrne, currency strategist at Citi.
OIL TALKS
Benchmark Brent crude oil LCOc1 , whose rise has helped
buoy stocks in recent weeks, fell below $40 a barrel, after
Iran's oil minister said on Sunday the OPEC member would join
discussions only once its own output reached 4 million barrels a
day. Brent last traded at $39.68, down 71 cents.
The Iranian and Russian energy ministers were meeting in
Tehran on Monday, the Russian ministry said on Twitter (NYSE:TWTR).
Yields on lower-rated euro zone government bonds, seen as
the main beneficiary of the ECB's package of interest rate cuts
and other measures, fell towards lows touched after the meeting.
German yields briefly underperformed after voters signalled
disapproval of Chancellor Angela Merkel's open-door refugee
policy in regional elections.
German 10-year yields DE10YT=TWEB fell 1.7 basis points to
0.26 percent. Lower-rated Italian equivalents IT10YT=TWEB were
last down 1.3 bps at 1.32 percent.
With investors nervous before the Fed meeting, gold XAU
rose towards last week's 13-month high, last trading at $1,255.