European shares backed away from 2-week highs on Wednesday as oil threatened to recross the $52 a barrel mark, while the dollar gained ground ahead of comments from Federal Reserve Chairman Alan Greenspan.
Recent signs of increasing inflationary pressure in the world's biggest economy have heightened speculation that the Fed might raise interest rates at a faster pace than anticipated and Greenspan's testimony will be scrutinised for clues on this.
"All the indications are that the Fed will continue to tighten policy at the recent pace...it would be a shock if Greenspan suggested anything different," said economist David Brown at Bear Stearns in London.
"We doubt (Greenspan's) message on the economy will change too much but as he is up in front of the House Budget Committee, he will probably have more to say about the need for deficit consolidation," Brown added.
The greenback traded at $1.3127 per euro and 104.66 yen , up 0.4 percent against both currencies as dealers looked ahead to Greenspan's testimony before U.S. Congress on the economy later in the day.
The Australian dollar tumbled across the board after data showed growth in the country's economy almost ground to a halt in the final quarter of 2004.
The euro zone government bond market hardly budged as dealers paused for Greenspan.
"There is no clear trend at the moment," said Charles Berry, trader at LBBW in Stuttgart. "There is no turnover in the cash market and every one is eyeing Friday's payrolls data -- everything is possible after that."
Wall Street shares are expected to fall on Wednesday, led lower by technology stocks after profit warnings from TIBCO Software and business software maker Verity.
SHARES SLIP
The FTSEurofirst 300 index of pan-European shares was down 0.3 percent at 1,097 as investors mulled the prospect of rising U.S. interest rates and high oil prices, both of which raise costs to industry and can curb consumer optimism.
Steel heavyweights such as Arcelor of France and Anglo-Dutch Corus came under pressure on fresh signs of soaring iron ore prices as China's biggest steel maker Baosteel followed Japanese steel mills by agreeing to a 71.5 percent hike in iron ore prices.
Shares in Rio Tinto -- which won the rise from Baosteel -- fell as the Chinese firm warned a shortage of ore could not last.
The European company results season chugged on, largely delivering as-expected performances, which did little to rekindle the mergers and acquisitions enthusiasm which helped sweep stock indexes in the region up to 32 month highs recently.
Construction giant Vinci posted a 35-percent rise in annual net profit and offered a 50 percent rise in its dividend, which boosted its shares by 2.8 percent.
Belgium's InBev, which brews Stella Artois and Beck's beers, climbed after it announced higher 2004 profits, but car parts maker Valeo fell amid continuing concern that higher energy costs might eat into earnings.
U.S. crude oil futures eased slightly to $51.56 after Brent crude and gasoil futures had climbed to fresh four-month highs at the start of the session, amid a cold snap and in anticipation that U.S. distillate stocks will fall for a sixth consecutive week.
New data on U.S. energy stockpiles will be released at 1530 GMT by the Energy Information Administration.
Gold tested the bottom of its recent trading range below $430 an ounce as the metal continued to consolidate and was seen under pressure from any further strengthening of the dollar.