* U.S. rates path point to summer hike
* $62 bln M&A deal in the offing
* Euro zone private sector growth slowing, flash PMIs show
By Jamie McGeever
LONDON, May 23 (Reuters) - Stocks, oil and yields on
government bonds all fell on Monday, reversing some of their
recent gains as investors began the week in a cautious mood,
still grappling with the possibility that U.S. interest rates
could soon be raised.
The FTSEuroFirst 300 index of leading shares .FTEU3 ,
Germany's DAX .GDAXI and France's CAC 40 .FCHI all shed
around 0.8 percent, and Britain's FTSE was down a third of a
percent .FTSE .
Shares in German drugs and chemicals group Bayer AG
BAYGn.DE were among the most notable decliners, down more than
3 percent after it unveiled a $62 billion bid for U.S. seeds
company Monsanto (NYSE:MON) Co MON.N .
Investors also took in economic data that showed euro zone
private sector growth in manufacturing and services slowing down
a little in May, even though Germany continued to power ahead.
U.S. futures pointed to a fall of around 0.2 percent at the
open on Wall Street, as investors continued to digest last
week's surge in U.S. rate hike expectations.
"U.S. economic momentum is starting to gather pace in the
second quarter. If this can be sustained, the Fed will need to
start following through on its words," said Michael Stanes,
Investment Director at Heartwood Investment Management.
"Indeed, a failure to act in the event that the Fed stays on
hold longer than the underlying data would suggest is likely to
increase the risk of a policy error," he said.
Purchasing managers index data showed that euro zone
business growth slipped in May to a 16-month low, the latest
evidence to suggest a strong acceleration in growth in the first
three months of the year was only temporary.
Markit's flash Composite Purchasing Managers' Index, one of
the first growth indicators in a month, edged down to 52.9 from
April's 53.0, the lowest since the start of 2015.
Germany's private sector growth accelerated in May to the
highest level so far this year, but activity elsewhere failed to
keep pace.
Earlier in Asia shares mostly rose, with MSCI's broadest
index of Asia-Pacific shares outside Japan .MIAPJ0000PUS up
0.3 percent, but Japan's Nikkei .N225 ended down 0.5 percent.
The Markit/Nikkei flash Japan manufacturing PMI showed
Japanese manufacturing activity contracted at the fastest pace
in more than three years in May, while a slump in Japanese trade
and reports that Japan's sales tax increase would indeed be
implemented all weighed on the Nikkei.
"In a climate dominated by speculation over monetary
policy, PMIs give a solid insight into the state of the 'real'
economy and how domestic industries are coping with policy
measures, and are not to be ignored," said Ana Thaker, Market
Economist at PhillipCapital UK.
OIL'S VERTIGO AT $50
Markets have started to entertain the prospect of a near
term U.S. rate hike after last week's release of Fed meeting
minutes showed that policymakers weren't shying away from
raising interest rates as early as next month.
The probability for a June rate hike rose from around 4
percent at the start of the week to 30 percent on Friday,
according to CME Group's (NASDAQ:CME) FedWatch site. Futures markets are
predicting two rate increases this year as opposed to just one
as recently as last week.
Federal Reserve Chair Janet Yellen will appear at a panel
event hosted by Harvard University on Friday. Fed branch
presidents including those from San Francisco, St. Louis,
Dallas, Minneapolis are also slated to speak earlier in the
week.
But given the speed of these expectation shifts, investors
took the opportunity for a pause on Monday, pushing bond yields
lower across the board. DATA/
The 10-year U.S. Treasury yield fell 3 basis points to 1.82
percent US10YT=RR , after having chalked up its biggest weekly
rise last week for six months. The two-year yield fell a basis
point, flattening the yield curve slightly.
Lower U.S. yields and a flatter curve kept a lid on the
dollar. The dollar index, which tracks the greenback against a
basket of six rival currencies, slipped marginally to 95.31
.DXY . It has racked up three straight weekly gains, a run not
seen since the first quarter of last year.
The yen gained most among the major currencies, supported by
the ballooning Japanese trade surplus. The dollar was last down
0.7 percent at 109.37 yen JPY= , and the euro was steady at
$1.1217 EUR= .
Crude oil prices fell by about 1 percent, once again running
out of steam as the $50 a barrel level came into view. It took
three months for oil to make the convincing and lasting break
below $50 on the way down last year, and it's shaping up to be a
psychological barrier on the way back up.
Both U.S. and Brent crude CLc1 LCOc1 were hovering
around $48 a barrel.
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Shanghai CSI 300 and global effects interactive https://t.co/YqIYLIbInP
Chinese A-shares vs developed and emerging stocks http://link.reuters.com/rac25w
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