Global markets rally stalls

Aug 13, 2012, 1:24 PM EDT

* Euro gains 0.4 pct vs dollar, seen vulnerable to sell-off

* Market moves capped by prospect of central bank action

* Oil tops $114 a barrel on growing supply worries

By Herbert Lash

NEW YORK, Aug 13 (Reuters) - World stock markets eased onMonday after weak Japanese economic data added to evidence thatthe global economy is slowing, while the euro rose as investorsexited bearish bets against the common currency.

European shares had their worst day in more than a week andU.S. stocks fell after six days of gains for the S&P 500 afterJapan reported its gross domestic product expanded just 0.3percent in the second quarter.

Japan's growth was half the expected rate, raising doubtsabout the global economy while highlighting the impact ofEurope's debt crisis on world demand.

Traders are looking for direction, with the S&P 500 hoveringnot far off its highest level in more than four years. Stocks'recent gains have been driven by investors' hopes for furthercentral bank easing amid signs of global economic weakness.

Janna Sampson, co-chief investment officer at OakBrookInvestments LLC in Lisle, Illinois, said she was still cautiousover the potential for Europe's debt crisis to blindside themarket. She said she would be closely monitoring data to see ifimprovement in the U.S. labor market would continue.

"I'm not sure we will get out of the summer without apullback," Sampson said.

The Dow Jones industrial average was down 70.03points, or 0.53 percent, at 13,137.92. The Standard & Poor's 500Index was down 5.36 points, or 0.38 percent, at 1,400.51.The Nasdaq Composite Index was down 9.35 points, or 0.31percent, at 3,011.51.

In Europe, the FTSEurofirst 300 index closed down0.4 percent at 1,094.74 points - its biggest intraday fall sinceending down 1.2 percent on Aug. 2.

The euro rose against the dollar for the first time in fourdays as investors pared bearish bets, but doubts about theability of the European Central Bank to rein in the region'sdebt crisis kept pressure on the currency.

Still, sterling fell against the euro on expectations thatUK data due this week will bolster the case for more monetarystimulus from the Bank of England to support a flagging economy.

The euro remained below a one-month high hit last week inthin trade.

"The euro is well below the highs of last week and today weare seeing some short-covering, but the move today is generallyuninspired in a lackluster session," said Marc Chandler, globalhead of currency strategy at Brown Brothers Harriman in NewYork.

The euro was up 0.35 percent at $1.2332 and the U.S.Dollar Index down 0.15 percent at 82.427.

Short-covering entails buying the euro to close bets thatthe currency would fall.

Many analysts expect the euro to tread water until Sept. 12,when the German constitutional court is to deliver its verdicton the euro zone rescue fund and the fiscal pact for budgetdiscipline.

Oil prices rose in choppy trade to hit a three-month peak onconcerns about North Sea supply and Middle East tensions, butfears about slowing growth checked gains.

Brent pared gains and U.S. crude turned lower on theJapanese data and worries of slower global growth.

Brent crude was up $1.35 at $114.30 a barrel. U.S.light sweet crude oil rose 38 cents to $92.25 a barrel.

U.S. Treasuries yields dropped for a third day as someinvestors were drawn to higher yields caused by a dramaticsell-off earlier this month.

The benchmark 10-year U.S. Treasury note was up7/32 in price to yield 1.6352 percent.

Copper fell for a fourth straight trading session as worriesabout global economic weakness dented the outlook for industrialmetals demand.