By Jeremy Gaunt, European Investment Correspondent
LONDON, Sept 8 | Thu Sep 8, 2011 3:48am EDT
LONDON, Sept 8 (Reuters) - The euro slipped on Thursday ahead of a European Central Bank meeting seen calling a halt to its rate tightening cycle to support economies battered by the euro debt crisis, while stocks fell.
Markets have already firmly priced in an end to the rate hike cycle and the bank's rhetoric is expected to confirm that view in response to signs that the euro zone economy is slowing and with the peripheral debt crisis no closer to ending.
Market players will also be looking at what the central bank says about its buying of southern European and Irish bonds given that the ECB is internally divided over the programme.
"If (ECB President Jean-Claude) Trichet makes cautious remarks on bond buying, Italian and Spanish spreads could rise again and hurt investor sentiment," said Junya Tanase, chief strategist at JPMorgan Chase in Tokyo.
World stocks as measured by MSCI were flat to lower but the FTSEurofirst 300 lost 0.4 percent after a more than 3 percent rise in the previous session.
Global equities suffered their worst correction since 2008 in August, on fears of renewed recession in the United States and worries about Europe's widening crisis. Despite a modest bounce in recent sessions, the MSCI All-Country World index remains 16 percent below its 2011 high, reached in May.
As a result, investors are eyeing a Group of Seven meeting starting on Friday for some guidance about what authorities plan next to avoid a return to recession.
Some analysts believe the economic situation is such that coordinated monetary policy easing may be needed.
Barclays said that at the least it was becoming more likely that the U.S. Federal Reserve would indulge in a new form of quantative easing in which it sells short duration bonds and buys longer ones.
EURO WEAKER
The euro was down 0.1 percent at $1.4082 , still holding above a seven-week low of $1.3972 hit on Monday.
"Markets are a bit cautious going into the ECB rate meeting," said Chris Walker, currency analyst at UBS.
"We could see a bounce in the euro as pricing in for rate cuts in October are a bit far fetched but any lift is likely to see some more selling."
German government bonds opened higher ahead of the rates meeting.
New inflation and growth forecasts from the ECB's in-house economists are likely to be revised down.
"The risk is that the market is disappointed temporarily if they don't turn full circle in one meeting, but it's unlikely to be a dramatic sell-off," said a bond trader. (Additional reporting by Anriban Nag, Alex Richardson, Kirsten Donovan and)
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