London(Reuters) - European shares and southern European bonds made tentative progress on Tuesday, as expectations the European Central Bank will provide fresh support in coming weeks helped counter uncertainty over European Union elections.
The region’s main bourses .FTEU3 inched up 0.15 percent after a mixed day in Asia, where Thailand declared martial law and the Australian dollar dropped.
After a tough past week, Spanish, Italian and other euro zone periphery bonds steadied in early European trading, along with their stock markets.
They were helped by growing expectations the ECB will cut interest rates and may take up some unconventional policies when it next meets, at the start of June.
At the same time, concern remained that euro-sceptic parties would do well in European elections, which start this week. That could undermine governments and destabilise reform efforts.
“Equities are getting a bit of traction and riskier assets are faring a bit better ... But political fears have clearly come to the surface,” said Nick Stamenkovic, a bond strategist at RIA Capital Markets.
The euro was again looking shaky, back at just under $1.37, after two weeks of hints the ECB will loosen policy, which have shaken bets the single currency would top $1.40.
A trio of ECB policymakers - Finland’s Erkki Liikanen, Austria’s Ewald Nowotny and Spain’s Luis Linde - are all due to speak later. They may fine-tune expectations of imminent policy easing.
FTSE .FTSE was the main outlier among the European bourses. Telecom giant Vodafone VOD.L warned its core earnings would fall in 2015 because its network will need to be improved.
Asian investors were monitoring developments in Thailand, where the army had declared martial law after six months of anti-government protests.
Bangkok’s SET index .SETI pared early losses but was still down about 0.8 percent. Thailand’s baht initially fell against the dollar, then steadied. Dealers suspected the Thai central bank had intervened.
The declaration of martial law was intended to restore peace and order and does not constitute a coup, deputy army spokesman Colonel Winthai Suvari told Reuters.
Fitch Ratings said martial law was not in itself negative.
“It may even help to break Thailand out of the political deadlock of the past six months, by which the two sides have failed to agree on arrangements for new elections,” said Andrew Colquhoun, its head of Asia-Pacific Sovereigns.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped about 0.3 percent. But Japan’s benchmark Nikkei stock average .N225 bucked the downtrend and tracked overnight gains on Wall Street.
The Australian dollar was the main mover on major currency markets on Tuesday, falling more than half a percent after a decline in the price of iron ore, one of the country’s biggest exports.
The dollar was slightly lower against the yen after dropping to its lowest in more than three months overnight. It last bought 101.44 yen, down about 0.1 percent on the day.
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 CLc1 rose slightly, to $102.73 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 and John Geddie in London; Editing by Larry King