* Dollar index firm near 2-month peaks
* European markets hit highs, then slip
* Investors keep an eye on weakening Chinese yuan
By Anirban Nag
LONDON, May 31 (Reuters) - Global shares steadied at
one-month highs on Tuesday, on track for a third straight month
of gain, while the dollar held strong near two-month peaks on
expectations the U.S. interest rates could rise next month.
European shares were lower in early trade, although the
region's stock markets were set for their best monthly
performance since late 2015, as the euro's EUR= weakness on
currency markets propped up export-driven companies.
The pan-European STOXX 600 .STOXX and FTSEurofirst 300
.FTEU3 indexes were in the red, having hit peaks in early
trade. The broader MSCI world equity index .MIWD00000PUS ,
which tracks shares in 45 countries, was up a tad at 1,676.96
points, its highest since late April.
Earlier, Japan's Nikkei stock index .N225 ended 1 percent
higher, extending a 1.4 percent rally in the previous day. It is
up 3.4 percent for May, thanks to a weaker yen JPY= .
The dollar index, which tracks the greenback against a
basket of six major currencies, gained 0.3 percent to 95.795
.DXY , not far from a two-month high of 95.968 and up nearly
2.9 percent for the month.
The dollar has risen recently on expectations of higher U.S.
rates. Fed Chair Janet Yellen said on Friday that the central
bank should hike rates "in the coming months" if economic growth
picks up and the labour market continues to improve.
"The question for me here is whether the dollar can carry on
rallying on the prospect of the Fed raising rates faster over
the next 18 months than is priced in, as opposed to rallying
only on expectations of a move in June or July," said Kit
Juckes, macro strategist at Societe Generale (PA:SOGN).
Investors are awaiting key data this week before taking
fresh positions. May's U.S. private-sector ISM manufacturing
data, due on Wednesday, and non-farm payrolls report on Friday
will be scrutinised and solid readings could further heighten
expectations for a move as soon as the Federal Reserve's next
policy meeting on June 14-15.
Economists predict the jobs report will show that U.S.
employers added 170,000 jobs, slightly more than they did in
April. Hourly wages are expected to show a 0.2 percent increase
from the previous month. ECONUS
CHINESE YUAN EYED
Investors were also keeping an eye on the weakening Chinese
yuan with worries about growth in the world's second-largest
economy creeping back. The yuan was on track for its second
largest monthly fall on record after the central bank softened
its midpoint to a 5-year low. CNY/
"The prospect of higher U.S. interest rates will, in due
course, test both the global markets and China's policy to
manage its currency," said Jade Fu, investment manager at
Heartwood Investment Management.
"In an environment of dollar strength, the People's Bank of
China may well be forced to further depreciate the renminbi,
risking the possibility of a one-off currency intervention."
In the commodities sphere, moves in crude oil futures were
limited before Thursday's meeting of the Organization of the
Petroleum Exporting Countries. Most analysts did not expect any
changes in the group's flat-out production.
There was no Monday settlement for U.S. crude futures
because of the U.S. Memorial Day holiday. They were up 0.3
percent at $49.46 on Tuesday, lifted by the start of the peak
demand summer driving season in the U.S. They are set for an 8.2
percent jump in May.
Brent crude futures LCOc1 were lower at $49.36 a barrel,
but poised for a gain of nearly 3 percent for the month.
The recent recovery in risk sentiment in recent days pushed
gold to its biggest monthly decline since November. Spot gold
XAU= climbed 0.5 percent to 1,210.93 per ounce, but was headed
for a slide of over 6 percent for the month.
(additional reporting by Sudip Kar-Gupta and Jemima Kelly;
Editing by Tom Heneghan)