Euro notes are pictured in this file photo by Picture: Lee Jae Won / Reuters.

London - Emerging market stresses left world shares facing their first monthly losses since August on Friday, as euro zone inflation data likely to keep the pressure for rate cuts on the ECB pegged the euro near a two-month low.

Eurostat's first reading of January inflation due at 12:00 SA time alongside unemployment figures, is forecast to come in at 0.9 percent, less than half the European Central Bank's optimal level.

European shares opened lower as they struggled to shake off the difficulties that have spread from emerging markets this week, but it was the euro hovering at $1.3548 that traders were focused on ahead of the inflation data.

The ECB meets next week, an although the bank is expected to hold fire, pressure remains intense for a more activist approach to ensure deflation doesn't take hold in the euro zone.

“We are likely to see a similar inflation print as last month, so from that perspective it would be consistent with no change from the ECB next week,” said Nomura euro zone economist Nick Matthews

“But I think the risk of further action remains high and if it came in as low as 0.7 percent, it would increase the pressure for a rate cut.”

The talk of a cut, combined with the push for safer assets in the wake of this week's emerging market rout, helped lift Europe's government bonds in early deals.

The region's stocks however, were heading for their first monthly drop since August.

Britain's FTSE 100 and France's CAC 40 were down 0.3 percent, while Germany's DAX was nursing the biggest falls, dropping 0.8 percent as weaker than expected retail sales and pressure on Deutsche Bank hit sentiment.

European banking authorities are due to sketch out some of the details of their upcoming stress tests at 13:00 SA time.

Lunar new year celebrations meant a number of bourses in Asia had been shut, but others slipped as fears about the impact of the Federal Reserve's stimulus withdrawal on emerging markets offset the reassurance of Thursday's upbeat US growth data.

Japan's Nikkei stock average reversed sharply and ended down 0.6 percent as a resurgent yen, combined with data dousing hopes of more stimulus from the BOJ, left the index with its third worst January in fifty years.

“I think the BOJ is unlikely to adopt additional easing because there is no reason to justify it, given the positive macro-economic environment,” said Junko Nishioka, chief economist at RBS Securities.


In the currency market, the dollar and the euro were largely cancelling each other out ahead of the euro zone inflation reading.

The Turkish lira was also steadier after its torrid week at 2.2570 to the dollar.

Political issues in countries like Turkey, South Africa and Argentina have amplified worries about economic imbalances, hammering their currencies and wiping over a trillion dollars off of the value of world stocks this.

Central banks in Turkey, South Africa and India have all reacted by hiking interest rates while Russia's central bank has pledged unlimited foreign exchange interventions to keep the rouble in check.

On the commodities front, spot gold was nearly flat at $1,243.00 an ounce, but a 2-percent overnight fall following the strong US GDP data looking like bringing an end to a five-week long rally.

Brent oil and US crude hovered at $107.90 and $97.80 a barrel respectively while growth-attuned metal copper drifted toward a 4 percent monthly fall.

“The absence of the Chinese market for the next week means that we may see some further downside on commodities, especially if we do see the dollar gaining ground,” said Tim Radford, of Sydney-based metals advisor Rivkin. - Reuters