European Shares Flat After Three-Day Drop

European shares looked to be stabilizing after three days of sustained selling on Thursday, as focus turned to the European Central Bank's monthly meeting for any sign it is readying further support measures.

Markets were under pressure as persistent speculation about the fate of U.S. stimulus lifted bond yields globally, while shares struggled to find their footing after this week's tumbles.

Although the ECB and the Bank of England, which also meets later, are likely to hold off any new policy action, the ECB's new economic forecasts will be in particular focus amid worries the euro zone is slowly slipping towards Japan-style deflation. European shares .FTEU3 opened down 0.1 percent as London's FTSE .FTSE, Paris's CAC 40.FCHI and Frankfurt's Dax .GDAXI inched lower, but the falls were more modest than recent sharp moves and the euro hovered just above $1.36. .EU<FRX/> Ned Rumpeltin head of G10 FX strategy for Standard Chartered said the ECB could disappoint after last month's rate cut.

"Frankly we think they are going to sit on their hands for quite a while, so there will be a bit of a period of expectation adjustment." "The main focus will be the forecasts and what will 2015 look like. If the inflation mid-point is below 1.5 percent, I think that is an affirmation of their easing bias through next year."

Market moves were largely cautious before the central bank meetings but also the latest read out on U.S. economic growth and the payrolls numbers on Friday. After suffering its biggest one-day fall in six weeks on Wednesday, the Nikkei .N225 ended down another 1.5 percent, retreating further from this week's six-year closing high.

"Starting from two days back, people are starting to get quite nervous about the market," a Tokyo-based senior trader at a European bank said. The dollar has also faded below 103.00 yen, giving investors an excuse to book profits on the market's gains. The Nikkei is up 8 percent since early November, and 46 percent on the year so far.

Offshore funds appeared to be cheering for the market. Foreigners bought a net 368 billion yen worth of Japanese shares in the week through November 30, on top of 709 billion yen in the week before that.

ECB MEETING

German government bond yields took a small step back from six week-highs. Strong U.S. data this week has triggered a bond sell-off on the view that monetary stimulus could be withdrawn.

Caution had also ruled in Asia, with MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS off 0.4 percent, and Shanghai .SSEC down 0.2 percent.

Australia's main index .AXJO shed 1.4 percent as Qantas Airways (QAN.AX) tumbled as much as 15 percent after the carrier issued a profit warning and announced job cuts.

There had been nothing but indecision out of Wall Street on Wednesday and early futuresprices pointed to another subdued start in New York later. Shares had taken a hit after a strong reading on private hiring led to speculation that payrolls could be upbeat and perhaps hasten the day when the Federal Reserve starts trimming its asset buying. <TOP/CEN>

Other data on services and housing was more mixed, but the risk was enough to leave 10-year Treasury yields near three-month highs at 2.84 percent. Ironically, a sustained increase in long-term yields is exactly what the Fed is trying to avoid, so the rise argues against a start of tapering at this month's policy meeting. The lift in yields helped the U.S. dollar regain some ground on the yen though it had faded back below 102 as Europe gathered pace. It may get further support if U.S. gross domestic product data gets revised up later Thursday.

A major mover was the Canadian dollar which sagged to 3-1/2-year lows after the Bank of Canada issued a dovish policy statement, highlighting the risks of undesirably weak inflation.

The euro was a touch firmer at $1.3605, having bounced from a trough of $1.3527 on Wednesday. Service sector data had showed activity in Italy and France shrinking in November but expanding in Spain and Germany, highlighting the divergence in the bloc.

There was more good news for Spain as Moody's upgraded its credit outlook to stable from negative, citing a rebalancing of and a brighter medium-term view for the country's economy.

In commodity markets, spot gold edged back to $1,233 an ounce, giving up some of Wednesday's 1.7 percent rally.

U.S. crude added another 25 cents to $97.45, on top of a 1.2 percent rally on Wednesday after data showed domestic crude stocks fell by 5.6 million barrels, snapping 10 straight weeks of builds. Brent crude hovered at $111.87.