* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* European stocks fall for fourth straight day, euro
* Periphery euro zone bond yields rise
* Gold touches one-month high
* Oil slips lower
By Marc Jones
LONDON, May 30 European shares fell for a fourth
day running on Tuesday and the euro was battling to avoid a
similar decline, as the prospect of early Italian elections and
Greece's ongoing struggles nudged the political temperature
The region's banks also came under pressure as Deutsche Bank
cut the sector to "underweight", while sterling rebounded
after being weakened recently by signs that Britain's election
next week might be closer than originally expected.
All this drove the traditional safe-haven assets of gold
and the Japanese yen higher and briefly pushed
yields low-risk German government bonds to their
lowest in more than a month.
Low inflation readings in Spain and Germany and
European Central Bank chief Mario Draghi's commitment to
continued stimulus in a speech on Monday helped
keep the euro subdued at $1.116.
At the heart of the moves, however, were signs that
elections in Italy may now come as early as September, after the
5-Star Movement became the fourth big party to back a switch to
a proportional electoral system.
Italian shares remained flat having slumped 2
percent on Monday and the premium investors demand to hold
Italian debt grew again as southern euro zone bonds were all
pushed into the red.
"We always knew Italy was going to come back into the
market's sights, but I think people thought we would have a
longer stay of execution," said Rabobank currency strategist
"It does seem like the market will have to face worries
about elections and populism again over the summer. That of
course is a drag for the euro."
Wall Street opened 0.2 percent lower, as traders returned
from a three-day weekend and eyed profit maximisation as the S&P
500 and Dow Jones headed for their sixth month of
gains in the last seven.
The dollar got a boost as U.S. consumer spending
recorded its biggest increase in four months in April and
monthly inflation rebounded, bolstering expectations U.S.
interest rates will rise again next month.
The dollar index, under pressure during the past fortnight
from concern over the difficulties of U.S. President Donald
Trump, gained around 0.1 percent in morning trade in Europe
STAY AND PLAY IN MAY
In spite of Europe's recent weakness, the pan-European STOXX
600 index is still set to end May in positive territory
and near a two-year high.
It will also be the index's fourth straight month of gains
and the seventh for world stocks. But investors
are reshuffling their portfolios as they seek fresh catalysts
after a surprisingly strong earnings season and a hot streak of
euro zone macro economic data.
European equity strategists at Deutsche Bank downgraded
banks to "underweight" saying the sector's valuations - which
have soared around 80 percent over the last year - were
no longer "compelling".
They also cut tech firms to "neutral", and JP Morgan's
analysts did the same to carmakers. At the same time, Deutsche
upgraded construction and energy stocks to "overweight" and JP
Morgan raised UK stocks to "neutral", saying they were at the
cheapest-ever levels on a price-to-book basis relative to
"We think UK is becoming interesting in the regional
allocation again," JPMorgan's strategists, led by Mislav
Matejka, said in a note to clients.
"(The) UK is a defensive market with high dividend yield. It
should perform better in the backdrop of potential softening in
activity indicators, lower inflation prints and continued
range-bound bond yields."
Greece's debt problems continued to simmer after it failed
to reach a deal on the next installment of its bailout programme
earlier this month.
Greek Finance Minister Euclid Tsakalotos on Tuesday
dismissed reports in Germany's Bild newspaper, that the country
could opt out of receiving the new tranche if it does not
receive clearer debt relief terms.
There was also more turbulence in Washington as the White
House announced that Trump's communications director, Mike
Dubke, was preparing to quit after just three months in his
In commodities, oil prices retreated around 80 cents a
barrel, as concerns lingered about whether the extension of
output cuts by OPEC and other producing countries will be enough
to support prices.
Global benchmark Brent fell 1.3 percent to $51.46
and U.S. crude futures slipped about 1.6 percent to
$49.35 a barrel.
Gold rose to a one-month high of $1,270 an ounce
before it ran out of steam. It has risen almost five percent
over the last three weeks as stock markets and other risk plays
Risk surrounding the closeness of Britain's upcoming
elections, the prospect of early elections in Italy and worries
over Greek debt were supporting gold, said Jeffrey Halley, a
senior market analyst at OANDA.
"The picture will get more muddy as the week goes on as we
have a lot of data from around the world coming in," he said.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Patrick Graham in London and Nithin ThomasPrasad
in Bengaluru; Editing by Larry King)