LONDON, Aug 29 (Reuters) - World stocks inched back from their latest tech-led record highs on Friday ahead of U.S. inflation data that will feed the Federal Reserve's crucial - and increasingly politicised - interest rate plans.
Traders were squaring up after another bullish month for global equities that has come despite brewing bond market worries over U.S. President Donald Trump's move to fire Fed policymaker Lisa Cook, and renewed political strife in France.
Both Europe's STOXX 600 (.STOXX),share index and the euro were down on the day and heading for their first weekly losses in four, while 0.4% dips on France's CAC 40 (.FCHI),and Germany's DAX (.GDAXI),left them set for trend-defying monthly drops.
State Street's head of global macro strategy Michael Metcalfe said it was the first time in a long while that political risk was on the rise after a period where international investors have been pouring money into the region.
"The question is do you take the fiscal risk in the euro or the Fed independence risk in the dollar," Metcalfe said. "This week, it looks like it's a score draw."
Wall Street looked set for a groggy start after two record highs for the S&P 500 (.SPX),on the bounce.
European 30-year bond yields are set to suffer their biggest monthly jumps since March though. The largest has come in France, where Prime Minister Francois Bayrou has called a confidence vote for September 8 that many expect him to lose.
The closely-watched spread France pays over Germany for 10-year debt held at 78 basis points on Friday, having soared over the last fortnight. . Investors were also digesting moderately higher inflation numbers from France and from key parts of Germany.
A UK bank share index (.FTNMX301010),fell 4.4% meanwhile after an influential think tank suggested the cash-strapped government there could begin taxing banks based on their Bank of England reserves.
Asia had been mixed overnight with Chinese shares (.CSI300),clocking up their best month in almost a year with a more than 10% gain on hopes that its economy, especially the tech sector, is picking up.
Japan's heavyweight Nikkei ended down on the day, although it too has jumped 4% in August and both it and MSCI's broadest index of Asia-Pacific shares outside of Japan (.MIAPJ0000PUS),are on an unbroken 5-month run of gains.
One blip in China, where the yuan has also been on the charge, was a 1.7% pull back on the tech-focused STAR 50 Index (.STAR50),after its near 30% boom this month.
It came as shares in chip firm Cambricon Technologies (688256.SS),dropped more than 6% as it issued an official risk alert over the more than doubling of its stock price since late July.
"Certainly, when you see such a very, very large move, and then some warning coming from the company, you could think that there has been a little bit of overshooting," said Frank Benzimra, head of Asia equity strategy at Societe Generale.
Stocks in Bangkok (.SETI),also fell 1.5% and the Thai baht eased 0.3% after the country's Prime Minister Paetongtarn Shinawatra was sacked for an ethics breach - a telephone call, during which she appeared to kowtow to Cambodia's powerful former leader Hun Sen.
WAITING ON PCE
The broader market focus is now on the soon-to-be-released U.S. PCE price index data - the Fed's preferred measure of inflation.
Economists polled by Reuters expect the index to stay steady at 2.6% in July from the month before. Excluding volatile items like food and energy, however, the index is expected to rise 2.9%, up from 2.8% in June.
Khoon Goh, head of Asia research at ANZ, said analysts would be looking to see whether the impact of trade tariff increases is starting to show.
"There are three important pieces of data ahead of the September FOMC. So there's the PCE, then there's the payrolls number next week, and then the CPI reading."
Traders are currently pricing in an 85% chance of a rate cut in September, up from 63% a month earlier, according to the CME FedWatch tool.
Fed Governor Christopher Waller on Thursday said he wants to start cutting interest rates next month and "fully expects" more rate cuts to follow, to bring the Fed's policy rate closer to a neutral setting.
The heightened expectations of imminent Fed rate cuts left the dollar on course for a monthly fall of 2% against a basket of currencies (.DXY),on Friday.
The euro was last down 0.2% at $1.1661, pressured in part by the political and fiscal worries in France, while sterling eased 0.4% to $1.3458, though was set for a monthly gain of more than 2%.
The dollar was also battling headwinds from worries about Fed independence as Trump steps up his campaign to exert more influence over monetary policy, including his latest attempt to fire Fed Governor Cook.
Cook filed a lawsuit on Thursday claiming Trump has no power to remove her from office.
Elsewhere, oil markets saw Brent crude futures drop 0.6% to $68.20 a barrel and U.S. crude dip to $64.21. Safe-haven gold was down 0.2% at $3,408.78 an ounce, while bitcoin fell 2% to just under 110,000 per dollar.
Additional reporting by Rae Wee in Singapore; Editing by Kirsten Donovan
