By Ryan Vlastelica
NEW YORK (Reuters) - Stock markets around the world edged lower on Tuesday as uncertainty over the European Central Bank's next policy move gave investors caution, with many indexes near multi-year or all-time highs.
A sharp drop in euro zone inflation opened the door to a rate cut, taking European shares down 0.2 percent, a pullback from five-year highs. Investors remain split on how the ECB may decide on Thursday to tackle expected very subdued growth across the region throughout 2014, according to new European Commission forecasts.
"I wouldn't be surprised if we get a rate cut, just to send a signal," said Markus Schomer, chief economist at fund managers PineBridge Investments. "A rate cut could at least help in lowering the value of the euro," adding that extending more ultra-cheap loans to banks would have greater impact.
But Koen Maes, global head of asset allocation at Dexia Asset Management, said: "I don't think they will cut rates, because frankly it wouldn't change anything at this point in terms of impact on the economic recovery."
Central bank policy is also in focus in the United States, with a run of mixed economic data casting doubt on when the Federal Reserve might start to slow its massive stimulus, which has taken both the Dow and S&P 500 to record levels this year.
The Institute for Supply Management's October read on the U.S. services sector came in at 55.4, above expectations.
The Dow Jones industrial average was down 25.56 points, or 0.16 percent, at 15,613.56. The Standard & Poor's 500 Index was down 4.11 points, or 0.23 percent, at 1,763.82. The Nasdaq Composite Index was down 3.02 points, or 0.08 percent, at 3,933.57.
The benchmark 10-year U.S. Treasury note was down 20/32, its yield at 2.6752 percent.
The prospect of both the euro zone and U.S. central banks supporting the global economy helped boost MSCI's world equity index 16 percent this year, though it fell 0.3 percent on Tuesday.
The euro traded just under $1.35 for most of the morning, holding near a seven-week trough of $1.3442 set on Monday. The U.S. dollar index, which measures the greenback against a basket of currencies, rose 0.2 percent, above a recent nine-month low.
However, against the Japanese currency, the dollar fell about 0.1 percent to 98.55 yen following a reaffirmation by Japan's central bank on Monday that it would do everything necessary to reflate its economy.
CENTRAL BANKS RULE
Investors are now awaiting Friday's U.S. October non-farm payrolls data to see if the unemployment rate eases from the current 7.2 percent. Economists in a Reuters survey expect the rate to have edged up. The Fed has promised to hold interest rates ultra-low at least until unemployment drops to 6.5 percent, provided inflation remains mild.
Before that, third-quarter U.S. gross domestic product data on Thursday will help show how strong the momentum in the economy was before last month's partial government shutdown.
Only China now looks likely to buck the trend for more monetary policy support. Premier Li Keqiang said in a speech published in full late on Monday that adding extra stimulus would be more difficult since printing new money would cause inflation.
Asian shares struggled as a result, slipping 0.2 percent, though Japan's Nikkei stock average bounced off its lows and managed a 0.2 percent gain.
Australian shares also bucked the downtrend, rising 0.8 percent after the Reserve Bank of Australia kept its cash rate steady at a record low 2.5 percent, as was widely expected.
In commodity markets, gold slipped 0.2 percent in its seventh straight day of slight losses, while copper rose 0.3 percent.
Brent crude dipped 0.4 percent at $105.77 per barrel, near a four-month low on worries over a prolonged period of reduced exports from Libya. U.S. crude futures lost 1.1 percent to $93.54 per barrel. (Editing by Nick Zieminski and Dan Grebler)
