By Jamie McGeever
LONDON (Reuters) - Stocks rose on Wednesday as investors looked to close the month on a high, while sterling fell after an opinion poll suggested the ruling Conservatives could lose seats in next week's UK general election, potentially leading to a hung parliament.
World stocks are poised to end May up nearly 2 percent, marking the seventh straight monthly increase and the longest monthly winning streak in over a decade.
MSCI's global equity index (MIWD00000PUS) rose 0.1 percent on Wednesday, sterling's earlier slide helped lift Britain's FTSE 100 (FTSE) to a fresh record high, and Germany's DAX (GDAXI) rose 0.5 percent.
U.S. futures pointed to a rise of 0.1 percent on Wall Street. (ESc1)
European stocks gained 0.2 percent (FTEU3) (STOXX) after a sharp fall in euro zone inflation led investors to believe the European Central Bank won't be quite as hawkish at its policy meeting next week than had been expected.
"The data suggest no need for the ECB to raise its refinancing rate before 2019. In the meantime, the Governing Council will feel comfortable enough to turn more neutral in its risk assessment at its meeting next week," said Florian Hense, economist at Berenberg Bank.
The first estimate of euro zone inflation this month showed at fall to 1.4 percent from 1.9 percent April, falling short of analysts' forecast of 1.5 percent. Euro zone unemployment fell to an eight-year low of 9.3 percent, also below consensus.
Earlier in Asia, shares drew some support from data that showed activity in China's manufacturing sector grew at the same pace in May as in April, although a sturdy performance from the Japanese yen helped push the Nikkei into the red (N225).
MAY DAY
The biggest mover in currencies was sterling, which shed as much as 0.5 percent after a YouGov poll showed the ruling Conservative Party might lose 20 of the 330 seats it holds while the opposition Labour Party could gain nearly 30 seats.
Sterling fell to a six-week low of $1.2770
On a trade-weighted basis, the pound slid to a new eight-week low of 77.2 <=GBP>.
New constituency-by-constituency modelling by YouGov showed the ruling Conservative Party might lose 20 seats at the June 8 election while Labour could gain nearly 30 seats, potentially leading to a hung parliament, The Times said.
The news came after a string of opinion polls showed a narrowing lead for prime minister Theresa May's Conservatives, shaking investors' confidence that she would easily win a majority and strengthen her hand in the Brexit negotiations.
"We're getting very negative on sterling again," said George Saravelos, FX strategist at Deutsche Bank (DE:DBKGn).
"If May is unable to deliver a substantially increased majority, her flexibility to negotiate will not have improved. A strong Conservative majority is also only a necessary, not sufficient condition for a smooth Brexit," he said.
The euro shrugged off the soft inflation data and rose 0.3 percent to $1.1217 <EUR=>, while 10-year German bond yields retreated from an earlier rise to trade steady on the day at 0.294 percent. <DE10YT=TWEB>
The dollar was down 0.1 percent against the yen at 110.75 yen <JPY=>, and the 10-year U.S. Treasury yield was also flat on the day at 2.22 percent (US10YT=RR). Two weeks ago it was at 2.41 percent.
In commodities, oil prices remained soft, as concerns lingered about whether the extension of output cuts by OPEC and other producing countries will be enough to support prices.
U.S. crude futures (CLc1) fell 2.2 percent to $48.57 a barrel. Global benchmark Brent (LCOc1) was down 2.5 percent at $50.53 per barrel.
Gold <XAU=> edged up 0.1 percent to $1,264 an ounce.