GLOBAL MARKETS-Trade tensions drag on stocks as markets await Fed verdict

* Sino-U.S. trade talks in Shanghai end with no deal
* Chinese June factory activity shrinks for third straight
month
* Fed expected to cut rates by 25 basis points, more seen
* Pound near 28-month low over fear of no-deal Brexit
* World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Updates prices throughout)
By Karin Strohecker
LONDON, July 31 (Reuters) - Fresh trade war fears weighed on
global stocks on Wednesday before a U.S. Federal Reserve
meeting, with the dollar holding firm and Britain's pound
subdued on growing fears of a no-deal Brexit.
Combative warnings from U.S. President Donald Trump cast a
shadow over Sino-U.S. trade talks, which concluded in Shanghai
on Wednesday. Beijing attributed the lack of progress to
Washington's flip-flopping The fresh trade tensions come before a U.S. Federal Reserve
meeting that's expected to see interest rates reduced by 25
basis points, its first rate cut in more than a decade. In focus
now is on whether the Fed will leave the door open for further
easing. The Fed's decision is due at 1800 GMT. MSCI's broadest global stock index .MIWD00000PUS and
Europe's pan regional STOXX 600 .STOXX both slipped 0.1%. The
latter is near a fresh one-month low as worries over trade wars
and Brexit offset encouraging signals from the earnings season.
London's FTSE .FTSE fell 0.1%, Frankfurt stocks .GDAXI
gained 0.3% and Paris .FCHI edged up 0.1%. U.S. futures
pointed to the main Wall Street indexes ESc1 NQc1 opening
higher.
In focus were banks, with strong results from French lender
BNP Paribas BNPP.PA and Switzerland's Credit Suisse CSGN.S
countering a poor report from British bank Lloyds LLOY.L .
"Trade talks have finished without an agreement," said
Justin Onuekwusi, fund manager at Legal & General Investment
Management. "Of course, it doesn't help that almost as a prelude
to the conversation you get tweets that are quite antagonistic."
Trump tweeted a warning to China against waiting out his
current presidential term before concluding a trade deal
Economic data underscored weakness in the euro zone economy,
although markets largely shrugged off the news. Figures showed
that growth in the bloc halved in the second quarter and
inflation slowed sharply in July The slowing inflation rate is likely to strengthen market
expectations that the European Central Bank, which wants to keep
inflation below, but close to 2%, will further loosen monetary
policy in September.
Click here https://tmsnrt.rs/2yodkWr for a euro zone
inflation graphic.
In Asia, shares ex-Japan .MIAPJ0000PUS fell to a six-week
low with China mainland stocks down nearly 1% and Hong Kong
tumbling 1.3%. Japan's Nikkei .N225 declined by 0.7%.
China data showing factory activity shrank for the third
month in a row in July added to the sombre mood. EXPECTATIONS
In the United States, expectations for Fed easing have
helped lift equities this month, with the S&P 500 .SPX index
up 2.4%. Fed funds rate futures 0#FF: are now fully pricing in
a 25-basis-point rate cut on Wednesday and another
25-basis-point cut by September.
"Exactly what happens today is far from a foregone
conclusion," Deutsche Bank's Jim Reid said in a note to clients.
"Although the Fed have given no real encouragement to the
notion of a 50 basis point (bps) cut it's worth noting that the
last time the Fed began a series of rate cuts, in September
2007, their opening move was a 50 bps cut, and a similar 50 bps
cut happened when the Fed began cutting in January 2001."
Trump on Tuesday reiterated his call for the Fed to make a
large interest rate cut, saying he was disappointed in the U.S.
central bank and that it had put him at a disadvantage by not
acting sooner In currency markets, the dollar index .DXY traded flat
around 98.030 after pulling back from a two-month high of 98.206
touched on Tuesday.
The dollar was also steady against the yen JPY= and the
euro EUR= . The yen was undermined on Tuesday by the Bank of
Japan's decision to refrain from expanding stimulus, although it
committed to doing so "without hesitation" if required
The British pound hovered near a 28-month low hit the
previous day on growing concern about a disorderly Brexit.
Sterling traded at $1.2170 GBP=D4 , not far from Tuesday's
$1.2120. It has fallen 4.2% so far this month, on course for its
worst monthly performance since October 2016.
In commodities, crude oil futures rose for the fifth
straight day, buoyed by a bigger-than-expected drop in U.S.
inventories. O/R U.S. West Texas Intermediate crude CLc1
gained 37 cents to $58.41 per barrel; Brent crude futures
LCOc1 added 41 cents to $65.13.

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Trade tension hits stocks Trade tension hits stocks https://tmsnrt.rs/2JNPb3M
Euro zone inflation and GDP https://tmsnrt.rs/2ypndmT
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