(Updates at 1208 GMT)

By Samuel Indyk and Ankur Banerjee

LONDON, June 26 (Reuters) - European stock markets

turned lower on Wednesday as the market braced for a French

election and a key U.S. inflation reading, while the yen tumbled

to its lowest since 1986, keeping traders on alert for possible

intervention by Japan's central bank.

Risk sentiment in Europe worsened through the European

morning with markets still sensitive to the global monetary

policy outlook, and a jump in consumer inflation in Australia

overnight did little to soothe nerves.

The pan-European STOXX 600 was last down 0.4% after

earlier touching its highest level since June 13, shortly after

French President Emmanuel Macron announced the snap

parliamentary election.

France's CAC 40 was down 0.9%, Germany's DAX

was down 0.2% and Britain's FTSE 100 slipped

0.2%.

"The turnaround in the market - which some might see as

relatively stable - could be explained by a tug of war between

bulls who are cashing in recent gains and bears who are

resurfacing on the back of mounting downside risks," said

Stephane Ekolo, equity strategist at TFS Derivatives.

"French election, sticky inflation, China slowdown and

geopolitical tensions, to name a few," he added.

U.S. equity futures were little changed, while MSCI's

broadest index of Asia-Pacific shares outside Japan

crept up to 567.59, just shy of the two-year

high of 573.38 it hit last week.

Japan's Nikkei and Taiwan stocks rose, led

by chipmakers, tracking a rally in the tech-heavy Nasdaq

on Tuesday, with Nvidia ( NVDA ) surging more than 6%, snapping

out of a three-session tailspin that had erased about $430

billion from its market value.

On the U.S. monetary policy front, Federal Reserve officials

have urged patience on interest rate cuts, with governor Lisa

Cook declining to say when the Fed would be able to act.

Fed Governor Michelle Bowman reiterated her view that

holding the policy rate steady "for some time" would probably be

enough to bring inflation under control.

The comments, along with data showing a stable housing

market, kept expectations in check over when and by how much the

Fed would cut rates.

"(The) worst thing the Fed could do is ease and then the

data continues to firm the inflation numbers back around," said

Rob Carnell, ING's regional head of research for Asia-Pacific.

Markets were pricing in 47 basis points of easing this year,

with a rate cut in September pegged at 72% probability, CME

FedWatch tool showed.

Traders await Friday's release of the U.S. personal

consumption expenditures (PCE) price index, the Fed's preferred

inflation measure, with economists polled by Reuters expecting

the annual growth to ease to 2.6% in May.

YEN HITS 38-YEAR LOW

In the currency market, the yen fell to 160.39 per

dollar, its weakest level since 1986, sparking speculation that

Japanese authorities could intervene to strengthen the currency.

In April, a fall to 160.245 per dollar was enough to prompt

Tokyo to spend roughly 9.8 trillion yen to support the yen.

The latest slide in the yen has come in the wake of the Bank

of Japan's (BOJ) decision this month to hold off on reducing

bond-buying stimulus until its July meeting.

The BOJ, though, is dropping signals that its quantitative

tightening plan in July could be bigger than markets think, and

may even be accompanied by an interest rate hike.

"What they said last time (at the June policy meeting) was

just so insubstantial that the market couldn't help but be

disappointed by it," said ING's Carnell.

"We need to see the BOJ coming through with an actual

hike. We still think that July looks a good month," Carnell

said.

Meanwhile, the Aussie rose to as high as $0.66885 after

hotter-than-expected inflation data, leading markets to narrow

the odds on another rate hike as early as August.

It was the second hot inflation reading in two days, after

Canadian CPI unexpectedly accelerated to 2.9% in May, a report

showed on Tuesday.

The dollar index, which measures the U.S. currency

against six peers, rose to 105.94, while the euro

softened to $1.0690.

In commodities, oil prices rose, with Brent futures

0.5% higher at $85.36 a barrel, while U.S. West Texas

Intermediate futures were up 0.5% at $81.25 per barrel.

Gold prices eased to $2,315 per ounce, but remain up 12%

this year, having touched a record high of $2,449.89 last month.