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Europe's main stock indices and bond benchmarks dipped on Tuesday amid reports of new US fines on banks and dimming prospects for an asset purchase programme from the European Central Bank.
Bank shares weighed on European equity indexes, compounding losses after a two-session drop, as Germany's largest lenders were said to be negotiating a settlement with US authorities over their dealings with countries blacklisted by Washington following a huge fine for French lender BNP Paribas.
At 0740GMT, the pan-European FTSEurofirst 300 index .FTEU3 was down 0.1% at 1,380.33. Germany's Dax was down 0.3%, France's CAC was down 0.1% and the UK's FTSE 100 was down 0.1%.
Shares in German lender Commerzbank fell 3.5% as the New York Times reported it could pay at least $500 million in penalties. Its larger competitor Deutsche Bank saw its shares slip down 0.5%.
"I think Commerzbank's stock will suffer a bit but unless they get a very big fine like BNP, I don't think it will suffer like the other banks (hit by US investigations)," said Mike Reuter, a broker at Tradition.
ECB Executive Board member Sabine Lautenschlaeger said late on Monday that an asset-buying programme should be a last resort - showing the strength of opposition in some quarters at the ECB to such a policy.
Yields on all euro zone government bonds edged up by around 1 basis points, while German Bund futures - the most traded fixed income security in the currency bloc - dropped 15 ticks to a day's low of 146.81.
The euro hit a plateau, paring some of the gains it made against the US dollar on Monday as markets stayed on guard for minutes from the Federal Reserve's last meeting due to be released on Wednesday.
The minutes will be scoured for hints on when the policy committee might consider raising interest rates, especially with strong US labour data last week underlining the steady recovery in the world's largest economy.
SAMSUNG WEIGHS
It was a quiet session in Asia overnight, with the region's stocks tracking sideways as the earnings season kicked off with disappointing guidance from regional tech heavyweight Samsung.
MSCI's broadest index of Asia-Pacific shares outside Japan was a fraction firmer, touching a three-year high of 502.27 during the session.
Samsung Electronics Co Ltd said its operating profit probably fell 24.5% in April-June to 7.2 trillion won ($7.12 billion), under the 8.3 trillion mean estimate from 38 analysts polled by Thomson Reuters.
However, its shares still managed to edge up 0.2%, perhaps because they have been falling for most of the past month as the market priced in a poor result.
The earnings season kicks off with Alcoa .AA later on Tuesday and dozens of major companies are scheduled to report next week, including numerous Dow components.
Profits are forecast to grow 6.2% for the quarter, according to Thomson Reuters data, but investors see a slight chance of a return to double-digit growth for the first time in nearly three years.
In commodity markets, gold edged a fraction lower to $1,317.70 an ounce XAU=, having held to a relatively tight $1,305.90 to $1,332.10 range for the past two weeks.
Oil prices extended their recent decline as events in Iraq and Ukraine have so far not led to any serious disruption in flows. Brent LCOc1 dipped 46 cents to $109.78 a barrel and US oil CLc1 lost 12 cents to $103.41 a barrel.
