* U.S. rates path point to summer hike
* $62 bln M&A deal in the offing
* PMIs in focus
By Jamie McGeever
LONDON, May 23 (Reuters) - Stocks seesawed on Monday while
oil, the dollar and bond yields all fell as investors began the
week cautious about prospects 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 fell as
much as 1 percent in early trade but then rebounded into
positive territory.
Shares in German drugs and chemicals group Bayer AG
BAYGn.DE were among the most notable decliners, however, down
as much as 3 percent after it unveiled a $62 billion bid for
U.S. seeds company Monsanto (NYSE:MON) Co MON.N .
U.S. futures pointed to a fall of around 0.3 percent at the
open on Wall Street, as investors continued to digest last
week's surge in U.S. rate hike expectations.
"The Fed's decision to convey a much firmer hawkish tone has
certainly woken people up to the possibility that rates could
rise over the summer and with that, the markets have perked up
as well," said Craig Erlam, senior analyst at Oanda.
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, essentially stable but still 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 2 basis points at 1.83
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, edged down 0.2 percent to 95.190
.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
0.6 percent at 109.50 yen JPY= , and the euro was steady at
$1.1217 EUR= .
Crude oil prices fell as much as 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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