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World shares, dollar inch higher

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ECB policy meeting on Thursday

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Canada cuts rates by 25 bps for first time in 4 years

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India stocks bounce after vote selloff

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Muted US private payrolls data bolster rate cut bets

By Danilo Masoni and Koh Gui Qing

NEW YORK/MILAN, June 5 (Reuters) - World shares rose and

Treasury yields steadied on Wednesday as investors focused on an

upcoming European Central Bank policy meeting following soft

U.S. labour market data that firmed up bets of a September

Federal Reserve interest rate cut.

Investor hopes that lower interest rates -- which can be a

boon for stock markets -- are in the offing were further

bolstered after Canada's central bank cut interest rates by 25

basis points for the first time in four years.

Combined with yet another muted U.S. labour report that

showed private payrolls increased by 152,000 jobs last month,

less than forecast, some analysts predicted that the Fed could

be on track to start lowering rates this year.

"The labor market should not be seen as a risk for inflation

any longer," analysts at TD Securities said. "It is also

supportive of the Fed beginning to ease policy in September if

inflation continues to gradually normalize as we expect by

then."

The MSCI world equity index, which tracks

shares in 49 countries, was up 0.3% by 1400 GMT, supported by

gains in Asia and Europe. Wall Street bucked the uptrend with a

mixed showing. The S&P 500 index was up 0.2%, the Dow

Jones Industrial Average fell 0.4% and the Nasdaq

Composite Index rose 0.7%.

The ECB meets on Thursday, and money markets price in an

almost certain chance of a first interest rate cut. However,

there is uncertainty about the future path of euro zone rates.

"I have a positive view on tomorrow's cut because it marks

the end of an era of rate hikes that began two years ago," said

Carlo Franchini, head of institutional clients at Banca Ifigest.

"Now, we'll need to see the impact that rate cuts will have

on domestic demand and the economic recovery".

Data on Wednesday showed euro zone business activity

expanded at its quickest rate in a year in May as growth in the

services industry outpaced a contraction in manufacturing.

The pan-European STOXX 600 index was up 0.6% and

the MSCI's broadest index of Asia-Pacific shares outside Japan

rose 1%. The Nikkei in Tokyo fell 0.9%

as renewed strength in the Japanese yen weighed.

Data on Tuesday showed U.S. job openings fell more than

expected in April to the lowest in more than three years, a sign

that labour market conditions are softening.

The data emboldened bets on Fed rate cuts this year, with

markets pricing in 45 basis points of easing, helping Wall

Street end up just slightly on Tuesday.

Traders are pricing in a 65% chance of a rate cut in

September, compared with 46% a week earlier, the CME FedWatch

tool showed.

"Economic data in America are frankly weakening. In the

past, such data caused a robust repricing and then nice rallies

in the stock market. Now, this is somewhat less so," said

Giuseppe Sersale, portfolio manager at Anthilia.

"The market seems to be shifting from a phase where it

celebrated bad data to being a little afraid that the slowdown

will be a little more pronounced. This explains why stocks have

been moving sideways for several weeks now," he added.

Services ISM data for May due later on Wednesday will be

watched for more indications about the U.S. economy ahead of the

crucial payrolls report on Friday.

Benchmark 10-year note yields were at 4.3435% on

Wednesday, after hitting an almost three-week low of 4.314% on

Tuesday following the jobs data.

Germany's 10-year government bond yield, the

benchmark for the euro zone, nudged lower to 2.527% after its

sharpest two-day drop since March in the previous session.

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

against six peers, was 0.25% higher at 104.42, just above the

near two-month low of 103.99 it hit on Tuesday.

The dollar's relentless strength in the recent past will

make way for minor weakness over the next 12 months, according

to a Reuters poll of strategists who generally agreed the dollar

was overvalued.

The U.S. currency's retreat helped the yen

strengthen to a more than two-week high of 154.55 per dollar on

Tuesday. On Wednesday, it weakened to 156.21.

In Asia, Indian markets stayed in focus, with stocks rising

after Tuesday's plunge as voting results showed a

slimmer-than-expected victory margin for PM Narendra Modi.

India's Nifty 50 rose 3.4% in volatile trading after

sliding nearly 6% on Tuesday, its worst session in four years,

with foreign investors selling roughly $1.5 billion of shares.

Modi's ruling Bharatiya Janata Party lost an outright

majority in parliament for the first time in a decade and is

dependent on its regional allies to get past the half-way mark

required to run the world's largest democracy.

In commodities, oil prices were above four-month lows as

traders weighed an OPEC+ decision to boost supply later this

year and an increase in U.S. crude and fuel stocks.

Brent crude futures were last at 77.94 per barrel,

up 0.5%, while U.S. West Texas Intermediate crude futures

traded at $73.6 a barrel, also up 0.5%.