*U.S., European stocks fall ahead of stress test results
*Bond prices decline on U.S. jobless claims data
*Japan stocks hit six-month high
By David Gaffen
NEW YORK, May 7 (Reuters) -- World stock markets pulled back as investors readied for the release of the U.S. government's stress tests on the largest U.S. financial institutions after the close of trading.
With stocks having rallied steadily for about two months, fund managers reduced holdings even though leaked reports suggest that bank balance sheets may be in better shape than expected.
In addition, a better-than-anticipated report on weekly U.S. jobless claims showed that the pace of job losses is abating. The U.S. dollar fell against the euro and other currencies, and bond prices were also lower as investors shifted away from traditional safe-haven assets such as Treasuries.
Bank stocks were lower, after the KBW Banks Index more than doubled after hitting a low on March 6. The banks have been at the forefront of this 35 percent rally in the Standard & Poor's 500-stock index, and investors are now left wondering whether the gains will persist, even with this event out of the way.
"People have made a lot of money -- even if you got into this rally late, you made a lot of money," said Sean Peche, portfolio manager at hedge-fund BlueAlpha Investment Advisory Ltd. in London. "The pullback just hasn't arrived."
Technology shares dropped on Thursday, as investors
expressed disappointment with earnings from security software
maker Symantec Corp.
The Dow Jones industrial average <.DJI> was down 56.95 points, or 0.67 percent, at 8,455.33 by midsession. The Standard & Poor's 500 Index <.SPX> was down 5.40 points, or 0.59 percent, at 914.13. The Nasdaq Composite Index <.IXIC> was down 29.76 points, or 1.69 percent, at 1,729.34.
Major European indexes were lower, after six consecutive days of gains. Drugmakers and miners weighed on the market, and financials fell ahead of the stress test results. The FTSEurofirst 300 index <.FTEU3> lost 0.8 percent, with the banking sector one of the biggest risers, while Germany's DAX <.GDAXI> fell 1.6 percent.
Shares in Asia continued to rally. Japan's Nikkei stock average rose 4.6 percent to a 6-month closing high on Thursday as bank shares rallied. Mitsubishi UFJ Financial Group <8306.T> gained more than 15 percent and Mizuho Financial Group <8411.T> rose 12.1 percent. In Hong Kong, the Hang Seng index gained 2.3% <.HSI>.
The euro strengthened as investors reacted positively to news that the European Central Bank would purchase up to 60 billion euros in debt securities outright in order to help revive the struggling euro-zone economy. The news came as the European Central Bank elected to reduce the bank's main interest rate to 1.0 percent from 1.25 percent. The moves mark a more aggressive move by the ECB to boost money supply in the euro zone, which ECB President Jean-Claude Trichet said is growing at a slower pace than desirable.
U.S. Treasury debt prices fell on Thursday as worries over pending supply weighed on the market, while jobless claims data supported some recent evidence that the economic tailspin may be reaching a bottom.
The benchmark 10-year U.S. Treasury note
In currencies, the U.S. dollar was down against a basket of major trading-partner currencies, with the U.S. Dollar Index <.DXY> down 0.24 percent at 83.80 from a previous session close of 84.001.
The euro
In energy and commodities prices, U.S. light sweet crude
oil