U.S. BONDS, CURRENCY MARKETS

The dollar rose against the euro and a range of other currencies in a holiday-thinned trading session, amid market nervousness one day ahead of policy announcements from the European Central Bank and the Bank of England.

Trading volumes were low, with the U.S. market closed for the Independence Day holiday. Analysts widely expect the European Central Bank to announce a 25-basis-point interest rate cut Thursday, but a recent deterioration in economic data has many market participants hoping for a cut that's twice as deep, said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.

The euro traded lower, at $1.2525 late Wednesday, compared with $1.2609 late Tuesday in New York, according to trading system EBS.

The common currency saw a heavy midday slump against the dollar and several other rivals in a move exacerbated by thinned trading volumes and some breached technical levels, but it largely recovered those losses in afternoon trading.

Thin liquidity, the kind consistent with a U.S. holiday, can give way to erratic price action in foreign exchange. Investors remain jittery about Europe as data this week revealed further economic weakness, with the purchasing managers' index for the manufacturing and services sectors still contracting, though at a slower pace.

Euro-zone retail sales, meanwhile, were stronger than expected, but the outlook was dim. Optimism, meanwhile, has waned about the European Union's agreement last week to establish a single banking supervisor and to allow the region's rescue funds to help failing banks.

The Netherlands and Finland said this week they will oppose using bailout funds to lower borrowing costs for countries such as Italy and Spain.

But central bank policy is likely to continue to dominate the foreign-exchange market this week. On Wednesday, the Swedish krona surged to an 11 1/2-year high against the euro, boosted by the Swedish central bank's decision to maintain its key interest rate at 1.5%. The move surprised many in the market who had been expecting the Riksbank to slash its policy rate.

The euro traded below SEK8.70 against the krona for the first time since December 2000. Sterling, meanwhile, sold off after an important survey of the U.K.'s dominant services sector showed activity in June easing to its slowest pace in eight months.

Investors, meanwhile, will look to the key U.S. nonfarm payrolls report for June, due Friday, for further hints on the path of monetary policy in the U.S. A recent batch of disappointing U.S. data has elevated expectations in the market that the Federal Reserve might announce a third large-scale bond-buying operation at its next meeting.

The Fed has a dual mandate to promote maximum employment and stable prices. The dollar was at Y79.87 late Wednesday, compared with Y79.79 late Tuesday, while the euro was at Y100.01 compared with Y100.61.

EUROPEAN STOCK MARKETS

A U.S. holiday thinned out volumes in Europe Wednesday, with energy stocks in decline and banks lower as investors got jittery a day ahead of the European Central Bank meeting.

Also in the spotlight, Robert Diamond, the ex-chief executive at Barclays PLC, testified in front of a U.K. parliamentary committee over the interest-rate fixing scandal.

The Stoxx Europe 600 index trimmed an earlier decline to end with a loss of 0.06 point to 257.33. U.S. markets were closed Wednesday for the Fourth of July holiday.

Energy stocks were pressured as oil prices pulled back from five-week highs reached Tuesday. Shares of heavyweight Norwegian oil and gas group Statoil ASA dropped 1.6%, while Tullow Oil PLC fell 1.9% in London.

Investors were also jittery ahead of European Central Bank and Bank of England rate announcements Thursday. Private-sector activity across the 17-nation euro zone saw another sharp contraction in June, but the pace slowed from May, according to the Markit composite purchasing managers' index for the region.

The Bank of England's Monetary Policy Committee is expected to add to its asset purchase program, which is the centerpiece of its quantitative-easing strategy. A separate survey by Markit showed the pace of growth in the U.K.'s services sector slowed in June.

The Spain IBEX 35 index fell 0.7% to 7,168.50, with power firm Iberdrola SA down more than 2% and Red Electrica Corp. SA off 1.5%.

Banks took a hit, with Banco Santander SA losing 0.3% and BBVA SA dropping 1%. Media reports citing European officials said a deal to send European aid of up to 100 billion euros ($125 million) to Spanish banks could be delayed until July 20, owing to the fact an audit of four banks in Spain isn't done.

The FTSE MIB Italy index fell 0.8% to 14,381.20, led by banks such as Banco Populare SC, down 2.3%, and Intesa Sanpaolo SpA, off 3.1%.

Another distraction for markets Wednesday was former Barclays Chief Executive Bob Diamond, who began testifying in the afternoon in front of the U.K. Parliament's Treasury Select Committee. A day prior, he and the company's chief operating officer stepped down in the wake of the Libor scandal.

Barclays slipped around 0.6%, but trading was choppy as markets parsed Mr. Diamond's testimony. Shares of Lloyds Banking Group PLC fell 0.5% and Royal Bank of Scotland Group PLC fell 0.9%.

The FTSE 100 index shed 0.1% to 5,684.47. Miner Xstrata PLC rose 1.8%. Shareholder activist fund Knight Vinke Asset Management Tuesday said it would vote against a merger proposal to unit Xstrata with Glencore International PLC, unless the commodity trader ups its offer for the miner.

Glencore jumped 2.7%. Among other major bourses, the French CAC 40 index fell 0.1% to 3,267.75, weighed by a 0.6% drop for BNP Paribas SA. Retailer Carrefour SA dropped 1.5%. German utility E.ON AG gave up 1.6%, driving the DAX 30 index down 0.2% to 6,564.80.

ASIA-PACIFIC STOCK MARKETS

Most Asia markets ended higher Wednesday as sharp overnight gains for gold and crude-oil prices spurred resource stocks, although Hong Kong and Chinese shares fell on profit-taking after recent advances and ahead of key global economic events. Japan's Nikkei Stock Average and South Korea's Kospi each added 0.4%.

Taiwan's Taiex inched up 0.1%. Hong Kong's Hang Seng Index and China's Shanghai Composite each slipped 0.1%. The day's performance came after U.S. stocks rose Tuesday in a shortened trading session ahead of the July 4 holiday, helped by a surprise lift in factory orders.

Analysts noted caution ahead of Thursday's interest rate decisions by the European Central Bank and the Bank of England, followed by the key U.S. nonfarm payrolls data on Friday.

Several energy sector shares jumped as a flare-up of geopolitical tensions about Iran boosted crude-oil prices in New York trade. Shares of Inpex Corp. climbed 2.9% and Japan Petroleum Exploration Co. rose 3% in Tokyo.

Resource-linked shares also drove gains across Asia after strong buying interest in commodities overnight.

In Hong Kong, China Coal Energy Ltd. surged 4.8% and Jiangxi Copper Co. added 1.6%, while commodities trading house Itochu Corp. climbed 2.1% in Tokyo.

Gold producers were well-supported as expectations of fresh stimulus measures by global central banks boosted gold futures Tuesday.

Zijin Mining Group Co. rose 2.3% in Hong Kong and 0.5% in Shanghai. Losses for some property and automobile shares dragged mainland Chinese bourses, after the Shanghai Composite rose in each of the previous three trading days.

The fall came amid fresh signs of weakness in the domestic economy, as China's services industry activity cooled to levels bordering on stagnation. Gemdale Corp. dropped 2.8% and Anhui Jianghuai Automobile Co. declined 1.2% in Shanghai; in Shenzhen, Oceanwide Real Estate Group Co. tumbled 3.1% and FAW Car Co. shed 0.7%.

COMMODITIES
Base metals closed lower on the London Metal Exchange Wednesday in thin, cautious trade with U.S. market participants on holiday. At the close of trading, LME three-month copper was 1.2% lower at $7,724.50 a metric ton. Zinc closed 0.4% lower at $1,897/ton. Canceled warrants in zinc a proxy for metal about to leave warehouses continues to rise, with a further 50,900-metric-ton increase reported Wednesday, bringing total canceled tonnage in zinc to 209,175 tons. Compiled from MORRISON SECURITIES PTY. LTD.