LONDON (Reuters) - European shares and peripheral bonds stuttered for the second day running on Tuesday, as political angst offset optimism over fresh support from the ECB, one of a handful of central banks still keeping loose monetary policy.
U.S. stocks futures pointed to a subdued start, holding just off record highs, with the focus on whether minutes from the last Federal Reserve policy meeting due on Wednesday will give any hints on the likelihood and timing of rates rises.
"There is no reason to buy, but no reason to sell either," said Emile Cardon, senior market economist at Rabobank.
Cooling geopolitical tensions in Ukraine have seen some risk appetite return to markets, with Russian stocks nearing three-month highs.
Nerves around this week's European elections, however, pushed up borrowing costs in the euro zone's weaker economies, with the premiums demanded by investors to hold Spanish, Italian and Portuguese bonds over German Bunds rising to two-month highs. [GVD/EUR]
Coupled with recent disappointing growth data, the worry is that strong showings by Eurosceptic parties from Greece to France could derail domestic reforms.
"The polls are suggesting that 25 to 30 percent of seats could go to the Eurosceptic parties," said Kelly Craig, a global macro strategist at J.P. Morgan Asset Management. "That shows that a lot of people aren't really happy with the way things are going."
Shares across the region faltered after a broadly solid start. The main bourses in London and Paris dropped 0.5 and 0.2 percent respectively while Frankfurt was flat.
The euro was at $1.37, after two weeks of hints the ECB will loosen policy, which have undermined bets the single currency would top $1.40.
One of a trio of ECB policymakers to speak, Finland's Erkki Liikanen said asset purchases were one of a string of measures being considered, adding to the debate on what the bank is likely to do at its meeting at the start of June.
Nervousness had also washed in from Asia, where Thailand declared martial law overnight after months of unrest and the Australian dollar dropped on uncertainty about its biggest industry, mining.
Thailand's baht initially fell against the dollar, then steadied as dealers suspected the Thai central bank had intervened. Bangkok's SET index also pared back some of its early losses to end down 0.8 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped about 0.3 percent. But Japan's benchmark Nikkei stock average bucked the downtrend and tracked overnight gains on Wall Street.
The Australian dollar was the main mover on currency markets on Tuesday, falling more than half a percent after a drop in iron ore prices, one of the country's biggest exports. [FRX/]
In the UK, high-flying sterling rose to a 16-month peak against the euro after a report showed British inflation rose more than expected in April, while the dollar dropped to a three-month low against the yen.
"The data fuels expectations for an early rate hike from the Bank of England, this despite the dovish tone of the Inflation Report last week," said Alex Edwards, head of corporate desk at UK Forex.
The BoJ is set to conclude its latest two-day policy meeting on Wednesday. Governor Haruhiko Kuroda has maintained an optimistic view of the Japanese economy, keeping expectations of further policy easing at bay.
In commodities trading, U.S. crude rose slightly, to $102.77 per barrel, after the weaker dollar lifted it close to a one-month high in the previous session. Spot gold was steady at $1,292.04 an ounce.
Additional reporting by Marius Zaharia in London; Editing by Mark Trevelyan