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China's stimulus announcement fails to inspire investors

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Q3 earnings, ECB in focus

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Oil prices down over 2.5%

(Updates prices, news throughout)

By Dhara Ranasinghe and Alun John

LONDON, Oct 14 (Reuters) - Stock markets held below last

month's record highs on Monday, while the Chinese yuan and oil

prices weakened as China's broad economic stimulus promises at

the weekend failed to inspire investors across the globe.

U.S. stock index futures were mixed ahead of

a week packed with third-quarter earnings that include the likes

of Goldman Sachs ( GS ), Morgan Stanley ( MS ) and Netflix ( NFLX )

.

Europe's broad stock index was little moved as investors

bided time before a European Central Bank rate decision on

Thursday.

Globally, the focus was firmly on China where the government

on Saturday pledged to significantly increase debt, but left

investors guessing on the overall size of the stimulus, a detail

needed to gauge the longevity of a stock market rally.

"We didn't get much over the weekend, but our expectations

were not for much anyway, I still think more fiscal stimulus is

coming, this year and in coming years," said Mohit Kumar, chief

financial economist Europe at Jefferies.

"In the short term, say a 3 to 6 month horizon, it is a

clear positive. But does it change my long term view? Probably

not, there are a lot of structural issues, such as the

overleveraged property sector."

While the CSI300 blue-chip index and the Shanghai

Composite Index gained around 2% each, shares in Hong

Kong closed around 0.8% softer.

Property stocks, onshore and offshore, posted solid gains as

investors bet the latest stimulus measures could aid China's

beleaguered property sector .

And the latest stimulus pledges prompted Goldman Sachs ( GS ) to

raise its China real gross domestic product forecast for this

year to 4.9% from 4.7%.

But in a sign of the mixed response from investors, China's

offshore yuan fell 0.3% to 7.0902 per dollar.

In addition, oil prices wiped out nearly all the gains made

last week after data showed China's inflation rate declined and

a lack of clarity on the country's economic stimulus plans

stoked fears about fuel demand in the world's biggest crude

importer.

Brent crude futures fell $2 to $77.02 per barrel, while U.S.

West Texas Intermediate crude futures also fell $2, or 2.7%, to

$73.52 per barrel.

In Europe, LVMH, Hermes, Kering

and other French luxury stocks exposed to China fell

roughly between 2% and 4%.

LACKING MOMENTUM

All this left MSCI's World Stock Index flat

on the day, below record highs hit last month.

French government bonds showed little immediate reaction to

news that credit ratings agency Fitch had revised France's

outlook to "negative" from "stable" on Friday, citing increases

in fiscal policy and political risks.

"People are already negative on France, it's some positivity

that they are making an effort (on the deficit)," said Kumar.

France's 10-year bond yield gap over benchmark Germany was

around 77 basis points (bps), slightly tighter from Friday's

closing levels.

Germany's 10-year bond yield was steady on the day at 2.27%

.

Currency markets, like government bonds, were largely

subdued.

The dollar drew support from reduced bets of a big Federal

Reserve interest rate cut next month.

Against a basket of currencies, the greenback was a

touch softer at 103.02, hovering near a recent seven-week high.

Traders have priced out any chance of a 50-basis-point rate

cut from the Fed in November after data last week showed

consumer prices rose slightly more than expected in September

and recent economic releases have also underscored strength in

the labour market.

Sterling dipped 0.1% to $1.3054, with some focus in

UK markets on an investment summit as the new Labour government

tries to boost the country's long-term economic outlook.

The euro eased just 0.08% to $1.0927 ahead of a

likely ECB rate cut on Thursday.

Konstantin Veit, a portfolio manager at PIMCO, said he

expected a quarter point rate cut to 3.25%.

Data signal a euro zone economy in worse shape than when

policymakers last met, boosting bets on speedier rate cuts than

the quarterly pace June and September reductions suggested.

"While the ECB has previously been guiding towards the next

rate cut in December, a weaker macroeconomic picture has likely

strengthened the Governing Council's confidence enough to

deviate from the quarterly rate cut trajectory and make its

first move outside a staff projection meeting," Veit said.