(Updates throughout)

By Elizabeth Howcroft

LONDON, June 27 (Reuters) - European stocks were

struggling for direction in early trading on Thursday as traders

waited for key inflation data, while markets were also on alert

for signs of Japanese authorities intervening in the yen after

further declines in the currency.

Shares fell and bond yields spiked in Asian trading as

investors became nervous jittery following a surprise jump in

inflation data in Australia on Wednesday and in Canada on

Tuesday.

At 0811 GMT, the MSCI World Equity index was down 0.1%

.

The pan-European STOXX 600 was up by less than 0.1%,

steadying after two days of declines.

London's FTSE 100 was a touch lower, but Germany's

DAX was up 0.2%.

Traders are waiting for Friday's U.S. personal consumption

expenditures (PCE) data, which is the U.S. Federal Reserve's

preferred inflation measure and could help traders determine the

outlook for the Fed's interest rate.

France, Italy and Spain will also release inflation data on

Friday.

Fiona Cincotta, senior markets analyst at City Index, said

markets were cautious.

"No one's really going to be wanting to take any large

positions ahead of tomorrow's inflation data," she said.

"In Europe you've got the political uncertainty which is

also limiting any upside ahead of the French elections," she

added.

The first round of French parliamentary elections will take

place on Sunday.

Euro zone government bond yields were up at their highest in

two weeks. The benchmark German 10-year yield was up 3 basis

points at 2.476%.

The risk premium on French debt was near a seven-year high

as markets worried about the risk of far-right or far-left

parties winning the elections.

U.S. Treasury yields were also up, with the 10-year U.S.

Treasury yield up 3 basis points at 4.3411%.

Expectations for U.S. rate cuts have been pushed back by

stubborn inflation and strong economic data. U.S. jobless claims

data are due later in the session.

"If we get lower than expected jobless claims that could

really add fuel to the fire that the Fed may not even cut rates

this year," City Index's Cincotta said.

Elsewhere, euro zone bank lending data showed lending stuck

near multi-year lows.

YEN WATCH

The Japanese yen was near to its weakest in 38 years versus

the U.S. dollar, keeping markets on alert for any sign of

intervention.

The dollar-yen pair was trading at 160.57, with the yen

having strengthened slightly since the pair's peak of 160.88 on

Thursday.

Japanese Finance Minister Shunichi Suzuki said he would take

any necessary action on currencies, and that Japanese

authorities are "deeply concerned" about the effect of the yen's

drop on the economy.

ING said in a note that authorities may have an incentive to

wait until after Friday's U.S. PCE data before intervening.

"Should US data fuel more USD strength, then intervention

would become almost inevitable - but with the new line in the

sand potentially closer to 165," ING FX strategist Francesco

Pesole wrote.

The U.S. dollar index was a touch lower on the day at 106

. The euro was up by less than 0.1% at $1.0685.

The Swedish crown weakened after Sweden's central bank held

its key interest rate at 3.75% as expected and said it could cut

rates two or three times in the second half of the year, if the

inflation outlook remained the same.

Oil prices were a little higher, with Brent crude futures

up 0.5% at $85.65 a barrel. U.S. West Texas Intermediate

crude futures were up 0.4% at $81.26 per barrel.

Gold was up 0.2% at $2,2303.3.