September 17, 2012 / 7:48 AM / 5 years ago

European stocks, euro edge lower as QE rally pauses

A woman looks at computer screens at Madrid's bourse August 2, 2012.Susana Vera/Files

LONDON (Reuters) - European stocks and the euro both eased on Monday, beginning a new week in cautious fashion after chalking up strong gains in the previous session following the launch of fresh U.S. economic stimulus.

German Bunds, up 13 basis points, clawed back some of their sharp falls from Friday when markets across Europe reacted to news the U.S. Federal Reserve planned to pump $40 billion a month into the economy until the jobs market improves.

Sentiment in all three markets remains broadly unchanged, however, with tests of new multi-month highs expected in the coming weeks for stocks and the single currency.

At 0722 GMT, the FTSEurofirst 300 index of leading European stocks was down 0.26 percent at 1,117.25 points, pulling back from a 14-month high hit in the previous session. World stocks, meanwhile, were down 0.12 percent.

Asian stocks were generally higher overnight, with the MSCI Asia ex-Japan index hitting a 4-1/2 month high, although Tokyo markets were closed.

"There is still good upside potential for stocks as we are re-pricing the 'non-break up' of the euro zone. We've just started to realise all the downside that came from the debt crisis," Louis Capital Markets trader Jerome Troin-Lajous said.

"Now, the main signal we need that would fuel this rally won't be coming from the economic outlook, it will come from the investment flows. A lot of foreign investors have been strongly 'underweight' European stocks and should start to switch out of bonds and out of U.S. equities and into European stocks."

The single currency, meanwhile, was down 0.05 percent to 1.3121against the dollar in early deals, while the greenback was unchanged against a basket of currencies.

Additional reporting by Anirban Nag, Kirsten Donovan and Atul Prakash in London and Blaise Robinson in Paris; Editing by Alastair Macdonald

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