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World stocks index dips after hitting record high

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Fed pushes rate cut bets back to Dec but inflation cools

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European shares lower as tariffs and politics weighs

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Graphic: World FX rates http://tmsnrt.rs/2egbfVh

By Marc Jones

LONDON, June 13 (Reuters) - World stocks retreated from

record highs on Thursday, as the feel-good factor of slowing

U.S. inflation and somewhat comforting Fed signals made way for

a fresh bout of politics- and tariffs-induced weakness in

Europe.

Bond market borrowing costs and the dollar rose after the

Fed nudged back rate cut expectations, but with the moves only

partly reversing big falls the previous day, markets are turning

their focus to upcoming data and policy meetings.

Europe's continent-wide STOXX 600 was driven 0.4%

lower by a 1.5% slump in its car makers as China

signalled it would respond to the EU's move to slap tariffs of

up to 38.1% on China-made electric vehicles.

A drop in bank stocks as well not only pointed to the

market's changed outlook on rates but also the uncertainty

caused by this week's sharp swing to the right in EU elections

and France's decision to call a snap parliamentary election.

The difference, or 'spread', between French and German bonds

was a steady 61 basis points having hit its widest

since March 2023 this week. Standalone yields on most sovereign

bonds were between 1-3 basis points higher after Wednesday's

softer-than-expected U.S. CPI figure that led to their biggest

falls since mid-May.

The Fed shift "could have been big," AXA's Chief Economist

Gilles Moec said. "But I think it was drowned out by the U.S.

inflation data we had. So the data beat the Fed guidance."

On the EV tariffs, he said that the EU was at least taking a

more targetted company-by-company approach rather than the kind

of blanket measures seen from the United States.

"And protectionism is something that got quite a bit of

traction during the EU elections campaigns," he added.

Japanese shares and the yen had underperformed overnight as

the Bank of Japan began a two-day policy meeting that is

expected to see it inch towards a modest tightening of its

policy stance.

MSCI's index of Asia-Pacific shares outside Japan

climbed 0.6% though as Taiwan's tech-heavy stock

market surged 1.8% to a new high buoyed by the U.S. S&P

500 and Nasdaq closing at all-time peaks on Wednesday.

CLOSE CALL

Chinese stocks had been dented slightly by the

European EV tariffs issue. But Hong Kong's Hang Seng

still rose 0.5% and Wall Street futures were pointing to further

gains there later, with the S&P expected to open 0.2%

higher and the Nasdaq 0.6% better off.

"Ultimately, I think markets prefer strong and robust

economic growth with no rate cuts than faltering growth with

multiple rate cuts," said David Chao, global markets strategist,

Invesco Asia Pacific.

"We are in this environment where I don't think it really

matters for markets when the first (Fed) rate cut is going to

happen - markets can still perform well."

In his post-meeting press conference on Wednesday, Fed Chair

Jerome Powell said the rate-path decision was a "close call" for

many policymakers, and to some degree a later start to rate

reductions this year had been compensated for with an additional

cut in 2025.

The closely watched CPI report earlier in the day had showed

core U.S. prices growing at their slowest annual pace in over

three years last month and analysts also took the view that

those figures wouldn't have been ready in time for the Fed's

forecasts.

"The Fed has changed its mind multiple times on its expected

policy path, so we don't put much weight on its new set of

projections," BlackRock Investment Institute head Jean Boivin

said.

The U.S. 10-year Treasury yield, which is the

main driver of global borrowing costs, was at 4.325% in Europe,

bang in the middle of where it had traded the previous day.

Australia's 10-year yields dropped as much as 10 bps to

4.196%. Japan's 10-year yields fell as much as 3

bps to 0.955% for the first time since May 17.

The Nikkei newspaper reported that the BOJ is likely to

debate a reduction in monthly bond purchases at its policy

gathering ending on Friday, echoing earlier reports from Reuters

and other news outlets.

The yen was a notable underperformer against the dollar

overnight. It lost 0.3% to 157.17 per dollar, erasing

Wednesday's 0.3% advance while the euro was steady at

$1.08 after what had been its best day of the year, albeit after

three days of politics-driven losses.

In the other closely watched markets, gold fell 0.5%

to $2,310.30 per ounce and oil dipped to $82.2 a barrel

following a bigger-than-expected rise in U.S. stockpiles. Brent

crude though is on course for its best week since early April.

(Addtional reporting by Kevin Buckland in Tokyo; Editing by

Jacqueline Wong)