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EUROPEAN OUTLOOK: Stocks Seen Sagging, Govt Bonds Firm

Euro-USD 0.9861 gain 0.0022 up 0.2%
Stlg-USD 1.5428 gain 0.0040 up 0.3%
USD-Franc 1.4865 loss 0.0020 dn 0.1%

ZURICH (Dow Jones)--European shares are expected to open lower, with government bond prices firm and the euro trying to gain on the dollar.

STOCKS: European shares are expected to open lower after Wall Street lost momentum on Friday. Investors can be expected to adopt a cautious stance in the thin summer markets and ahead of key data in coming sessions that could spell more economic slowdown or stagnation ahead in the U.S. And as strategists are fond of saying, the European economy needs the U.S.

As in the past few weeks, Vivendi will again dominate this session.

Vivendi is considering selling piecemeal its entire publishing subsidiary to raise much-needed cash. Vivendi Universal Publishing is one of the French conglomerate's most profitable units. Vodafone is discussing buying Vivendi's stake in their joint-venture Internet portal, Vizzavi, for as much as $148 million.

BONDS: Euro-zone government bonds are likely to open at least steady while investors ponder whether current yield levels offer opportunity.

Euro-zone government bond prices rose Friday following U.S. housing and sentiment data, but profit-taking wiped out a mid-session futures rally.

"Some investors are looking at establishing curve steepening trades again on the view that the recent flattening happened too quickly," one trader from a European bank in London said.

Andre de Silva, deputy head of bond strategy at HSBC, said he expects international bond yields to push lower with the markets on "the cusp of sensibility to economic data."

Key data this session include U.S. leading indicators.

FOREX: The euro starts the week on firm ground after recent U.S. economic data showed fresh signs of stagnation. Market players will watch for upcoming figures, such as the leading indicators, for confirmation of slowdown.

While many argue that U.S. economic picture still looks brighter than that of the euro-zone, the euro is nevertheless favored because of other issues plaguing the dollar.

The greenback could be pushed around more violently this week as volumes get thinner with many traders absent.

Currency market participants will continue to track the U.S. stock and bond markets for clues whether the still high levels of global risk aversion are abating.
This week's light slate of U.S. data includes the index of leading economic
indicators from the Conference Board and the balance of trade for June. Some expect
a record trade deficit, which could weigh on the dollar.