German Ifo hits stocks, Carney knocks sterling

By Jamie McGeever

LONDON (Reuters) - European stocks fell on Tuesday after a survey found German business morale was flagging, while sterling weakened after Bank of England governor Mark Carney stirred market doubts about how soon interest rates would rise.

Germany's Ifo index of business sentiment eased more than expected in June to its lowest level this year, leading shares to give up gains they had made on the latest talk of mergers and acquisition.

The FTSEurofirst 300 index of leading shares was down 0.2 percent at 1,385 points, Germany's DAX was down 0.1 percent at 9,912 and France's CAC 40 was up 0.1 percent at 4,520.

Britain's FTSE 100 was down 0.1 percent at 6,792.

"You are seeing economic statistics in Europe that are disappointing," said Francois Savary, chief investment officer at Swiss bank Reyl. "There is nothing major, but it is time for a period of some consolidation on the markets."

Economists at Barclays said the Ifo data and Monday's surprisingly soft manufacturing PMI figures suggest German growth in the current cycle has peaked.

But the downside for shares was limited by renewed talk on Tuesday of merger and acquisition activity. Agrochemicals company Syngenta surged as much as 6.5 percent on a media report that peer Monsanto had considered buying it in a deal worth $40 billion. Syngenta shares were last up 5.75 percent.

"Our outlook for equity markets for the remainder of the year is positive. M&A has made a welcome return in recent months," said Mark Burgess, chief investment officer at Threadneedle Investments.

Earlier in Asia, after a sluggish start most markets across the region edged ahead and MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent. Japan's Nikkei added a slender 0.05 percent.

CARNEY KNOCKS STERLING

The biggest mover in currency markets was sterling, which fell below $1.70 and further back from recent 5-year peaks after BoE governor Mark Carney told UK lawmakers that there's little wage or inflationary pressures in the UK economy and that spare capacity will need to be absorbed before rates rise.

This appeared to cool expectations that UK interest rates could be hiked this year, expectations that were fuelled by comments from Carney himself earlier this month.

"An early rate hike may not be a done deal as yet," said Valentin Marinov, head of G10 currency strategy at Citi.

Sterling was last down 0.2 percent at $1.6995, having earlier fallen more than half a cent to as low as $1.6971.

The euro was up slightly at $1.3619 and the dollar was down slightly against the yen at 101.90 yen, leaving the dollar index down a little at 80.223, well within the narrow 80.000-81.000 range seen since May.

There was more life in commodity markets, where oil fell below $114 a barrel on easing fears over Iraqi supply only to bounce back sharply with gold's spike.

Brent crude oil futures were last up 0.2 percent at $114.34 a barrel, and U.S. oil futures were up 0.2 percent at $106.35 a barrel.

Spot gold rose to its highest in more than two months at $1,325 an ounce, and is now up around $75 so far this month, while silver rose to its highest since March above $21 an ounce.

"The greenback is slightly weaker today, while European equities are extending losses from yesterday," said VTB Capital analyst Andrey Kryuchenkov.

"Low volumes and technical trading will prevail this week since there is little else aside form Iraq to drive the market, with hardly any physical flows at the moment."

U.S. Treasury bonds rose, pushing the 10-year benchmark yield down almost two basis points to 2.60 percent.

(Reporting by Jamie McGeever, additional reporting by Sudip Kar-Gupta and Jan Harvey in London; Editing by Ruth Pitchford)