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STOXX 600 flat, CAC 40 up 0.3%

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German-French bond yield spread widens further

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Dollar holds firm ahead of Fed meeting, U.S. CPI

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Oil prices stabilise after rally

(Updates at 0830 GMT)

By Alun John and Wayne Cole

LONDON/SYDNEY, June 11 (Reuters) - European assets found

some footing on Tuesday, a day after the announcement of a snap

election in France had driven them lower, while investor

attention began to turn to the double whammy of U.S. inflation

data and a Federal Reserve meeting on Wednesday.

Europe's STOXX 600 index was flat with France's

CAC40 up 0.3%, having tumbled 1.35% on Monday.

The euro was steady at $1.0767 after shedding 0.33% the day

before, but French government bonds remained under

pressure, and its 10-year yield rose 2 basis points to 3.26%

having jumped 8 bps on Monday.

With Germany's 10-year yield steady at 2.67%, the spread

between the two, a gauge of the premium investors require to

hold French debt rather than the euro zone benchmark, widened to

58.6 basis points , its most since

January.

The far-right National Rally was forecast on Monday to win a

snap election in France but fall short of an absolute majority

in the first opinion poll published after President Emmanuel

Macron's shock decision to dissolve parliament.

"Snap elections in France was a surprise and raises concern

over the reform process when the deficit picture in France is

already weak," Mohit Kumar, chief Europe economist at Jefferies,

said in a note.

"However, we do not think that political uncertainty opens

the door for instability in the Euro area or a break-up of the

Euro area. Hence, we would not translate a short France view

into a short Italy or Spain view."

Across the channel, investors were digesting data showing

Britain's labour market showed more signs of cooling in April as

the unemployment rate rose.

While this is unwelcome news for Prime Minister Rishi Sunak

ahead of a July 4 election, it could enable the Bank of England

to cut interest rates in August. Next week's inflation data will

offer a better guide however.

Investors in British mid caps welcomed the news with the

sector share index up 0.3%. The pound was down a

fraction against the dollar at $1.2723, though the 10

year gilt yield fell 2 basis points to 4.30%.

Elsewhere, markets gave a muted reaction to Apple's ( AAPL )

long-awaited AI strategy, which integrates "Apple Intelligence"

technology across a suite of apps. The iPhone maker's shares

shed 0.3% in after hours trade, having slipped 1.9% in normal

hours on Monday.

S&P 500 futures and Nasdaq futures both eased

0.1%.

Moves in Asia were mostly modest, with MSCI's broadest index

of Asia-Pacific shares outside Japan dipping

0.5% in thin trade. Chinese blue chips fell 1.2%,

having been shut on Monday, while the yuan hit a seven-month

low.

ONE CUT, OR TWO?

The biggest scheduled economic developments of the week are

due on Wednesday, with U.S. consumer price inflation and the

Federal Reserve policy decision.

The Fed is considered certain to hold steady at the

conclusion of its two-day meeting on Wednesday, with the focus

on whether it keeps three rate cuts in its "dot plot"

projections for this year.

"We expect the dots to show two cuts in 2024, four cuts in

2025, three cuts in 2026 and a slight tick up in the longer-run

or neutral rate," said analysts at Goldman Sachs in a note.

"We think the leadership would prefer a two-cut baseline to

retain flexibility, but a one-cut baseline is a possible risk,

especially if core CPI surprises to the upside on Wednesday."

The consumer price index (CPI) is forecast to rise a slim

0.1% in May, but with the core up 0.3%.

Rate futures imply 38 basis points of Fed easing for this

year, compared to 50 bps before the jobs report.

The other central bank meeting this week is the Bank of

Japan, which might decide to taper its bond buying at a policy

meeting ending on Friday, as a step toward another rate hike.

Assuming markets aren't disappointed by the size of the

change, this could support the embattled yen. The dollar was up

0.2% at 157.38 yen, its highest in a week

Gold was just above one-month lows at $2,306 an ounce

, after getting whiplashed by the pullback in market

pricing for U.S. rate cuts.

Oil prices consolidated Monday's 3% rally, as investors

awaited monthly oil supply and demand data from the U.S. Energy

Information Administration and OPEC on Tuesday, and the

International Energy Agency on Wednesday.

Brent futures were steady at $81.62 a barrel.