* European equity funds see record inflows: EPFR
* Signs of caution creeping in, CS cuts Spain to
* Dollar poised for best week of the year
* Oil stable on OPEC cut extension, U.S. inventories drop
By Vikram Subhedar
LONDON, May 12 Global stocks paused near record
highs as worries over China's banking system provided an excuse
for investors to lock in some profits. The dollar was set for
its best week of the year on bets the Federal Reserve will raise
U.S. interest rates in June.
A dip on Wall Street overnight on signs of weak consumer
spending and waning enthusiasm over the recovery in European
corporate earnings has put MSCI's gauge of world stock markets
on track for its first weekly loss in four.
The index trades at now trades at more than 16 times forward
earnings, according to Thomson Reuters data, and above its
long-term average of 15.6 times.
U.S. stock futures were down another 0.2 percent on
"We've had a nervous twitch about China, over this week,"
said Sean Darby, chief global equity strategist at Jefferies.
"We've had a bit more of a regulatory overhang coming through in
the financial system."
China's banking regulator this week launched emergency risk
assessments of lenders' new business practices, sources told
Reuters, as Beijing extends its crackdown on shadow banking.
With corporate earnings seasons in the U.S. and Europe
drawing to a close investors, focus is likely to shift back to
central banks, particularly in the United States, where
inflation pressures are growing.
U.S. data on Thursday showed producer prices rebounded more
than expected last month, leading to the biggest annual gain in
Combined with a tightening labour market, firming inflation
backs market expectations that the Federal Reserve will raise
interest rates at its meeting next month. The central bank has
forecast two more increases this year after raising rates a
quarter of a point in March.
The stronger fundamentals in the U.S. helped offset
uneasiness over political turmoil after President Donald Trump
abruptly fired FBI chief James Comey.
The dollar index, which tracks the currency against a basket
of six major rivals, was flat on the day at 99.622, but
was up 1 percent for the week.
Sterling was steady on the day at $1.2886 after
dropping to a one-week low on Thursday following the Bank of
England's decision to keep interest rates unchanged.
Policymakers indicated that rates were unlikely to rise until
EUROPE'S SWEET SPOT
In Europe, stock markets steadied this week. Company profits
are expected to grow 20 percent in the first quarter, the best
corporate results in a decade, according to Morgan Stanley.
Their outperformance this year against global peers remains
intact, with the benchmark's 10 percent gains outpacing
the 7 percent rise on the S&P 500.
Greek stocks snapped a their longest winning streak
in two decades.
"European stocks are still in the sweet spot of basking in
the removal of political risk in Europe for the time being,
though it is somewhat ironic that we could see a modest decline
on the week as investors take stock," said Michael Hewson, chief
markets analyst at CMC Markets.
European equity funds pulled in a record $6.1 billion in
inflows in the week to May 10, according to data from EPFR, with
centrist Emmanuel Macron's win in the French presidential
election seen as a trigger.
Concerns over valuations are beginning to emerge. Credit
Suisse strategists cut their rating on Spain, the euro zone's
top performing market for the year, to "underperform," saying
the strong earnings and economic momentum was moderating
At the same time, the collapse in volatility across asset
classes to multi-year or record lows, is tempting more investors
into making bets that markets will remain calm given the
brighter outlook for global growth.
Bank of America Merrill Lynch said its high-net-worth
clients cut cash and resumed buying low-volatility
Yields for the euro zone's weaker borrowers, such as Italy,
Portugal and Spain, were all also 1 to 3 basis points lower as
investors awaited announcements of the volumes for expected bond
sales next week by France and Spain.
Oil prices held recent gains as traders expected OPEC-led
production cuts to extend beyond the middle of this year and as
U.S. crude inventories fell to their lowest levels since
International Brent crude futures were at $50.78 per
barrel. U.S. West Texas Intermediate crude futures were
at $47.85 per barrel, both little changed on the day.
(Reporting by Vikram Subhedar, editing by Larry King)