By Richard Hubbard
LONDON (Reuters) - Weak data fanned expectations on Thursday of more central bank action in Europe, keeping yield-hungry investors focused on the region's stock markets and the dollar near a six-week high against the euro.
With most markets trading in narrow ranges, the dollar rose 0.1 percent against the euro to around $1.2870, having hit a six-week high of $1.2843 on Wednesday.
It gained 0.3 percent against the yen to 102.57 after the Bank of Japan's efforts to reflate the economy via a massive stimulus programme were endorsed by unexpectedly strong growth data from Tokyo.
Against a basket of currencies, the dollar was up 0.1 percent at 83.93, just shy of the multi-year peak of 84.10 hit in July 2012.
"The euro is being caught in the crossfire here. The dollar's strength is going to be the dominant story of the second half of the year," Chris Turner, head of FX Strategy at ING said.
Expectations of more central bank stimulus in the euro zone - reinforced by data showing annual inflation was a below-target 1.2 percent in April - kept shares near multi-year highs.
MSCI's world equity index was down 0.1 percent, close to its best levels since mid-2008 after gains of nearly 11 percent this year.
The FTSE Eurofirst 300 index of top European shares was down 0.2 percent at 1,243.50, also near a five-year peak.
"Markets have rallied hard recently and in a low interest rate environment and with quantitative easing measures in place, equities are still the place to be," Jawaid Afsar, sales trader at SecurEquity, said.
The sharp drop in annual euro zone consumer inflation was led by lower world oil prices, but the data also highlighted how households are not spending and companies are not investing, dampening hopes for a recovery a day after data showed the euro zone was mired in its longest ever recession.
The main German bond futures contract was 6 ticks higher at 144.78 after the inflation data.
JAPAN STIMULATED
Earlier MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.3 percent and the Nikkei index in Tokyo ended down 1 percent after Japan's economy grew 0.9 percent in the first quarter.
The index hit a 5-1/2-year high earlier in the session and is up a hefty 44 percent for the year to date.
The growth rate was the quickest pace in a year and the economic stimulus programme launched by Prime Minister Shinzo Abe and the central bank.
"There's now proof that Abenomics is working and that the economy is on a solid footing." said Yoshiki Shinke, senior economist, Dai-Ichi Life Research Institute in Tokyo.
The growth in the world third largest economy contrasts with the ongoing recession in the euro zone, worries about the health of China's recovery and follows a surprise drop in U.S. industrial output for April.
The uncertain outlook has weighed on commodity markets, which were mostly weaker again on Thursday.
Brent crude was down 32 cents to $103.36 a barrel, and U.S. oil was down 53 cents to $93.77, gold dropped to its lowest level in almost a month at $1,374.99 an ounce and iron ore traded near its lowest since December.
But copper on the London Metal Exchange edged away from two-week lows to be up 0.13 percent at $7,207.25 a tonne.
(Additional reporting by Daviud Brett; Editing by John Stonestreet)
