By Vikram Subhedar
LONDON (Reuters) - European shares were poised to fall for a seventh straight session while the dollar edged lower with investors largely holding back as the contentious U.S. presidential campaign entered its final week.
Earlier in the day, stronger-than-expected manufacturing data from China underpinned gains in Asian stocks and further stoked inflation expectations that drove a selloff in bonds in recent weeks.
Forecast-beating results from oil major Royal Dutch Shell (L:RDSa) initially provided a boost to Europe's STOXX 600 (STOXX) index but those gains proved short-lived with weakness in banks (SX7P) dragging the index 0.1 percent lower.
Trading volumes were light across major European exchanges.
The dollar was slightly weaker against a basket of currencies with the dollar index (DXY) down 0.2 percent.
In a busy week for central banks, the Bank of Japan and Reserve Bank of Australia held their policies steady as expected.
The BoJ also held off on expanding stimulus on Tuesday but once again pushed back the timing for hitting its inflation target. The dollar hovered around 104.80 yen.
"We're in limbo, unfortunately, ahead of the U.S. election," said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets.
Hillary Clinton held a five-percentage-point lead over Republican rival Donald Trump, according to a Reuters/Ipsos opinion poll released on Monday, down only slightly since the FBI said last week it was reviewing new emails in its investigation of Clinton ahead of the Nov. 8 election.
Markets see only a small chance that the U.S. Federal Reserve will raise rates when it concludes its meeting on Wednesday, but traders will be scouring its statement for clues on the timing of its next rate hike.
Chances of a rate hike in December were at around 78 percent, according to the CME Group's (NASDAQ:CME) FedWatch Tool.
Meanwhile, Italy's borrowing costs hit fresh two-year highs on Tuesday with investors wary of political risks and banking sector reforms continuing to run into hurdles.
Other euro zone bond yields also rose between 3-4 basis points on the day, with Ireland's 10-year bond yields hitting its highest level since June, rising 4 bps to 0.69 percent <IE10YT=TWEB>.
The ramp-up in yields has been a central theme across markets over the past month, spurring turbulence in debt markets and sending global investors out of bonds and into cash on fears that a multi-decade bond bull run was coming to an end.
In commodity markets, oil prices rose from one-month lows after OPEC agreed on a long-term strategy that was seen as an indication the cartel was reaching a consensus on managing production.
U.S. West Texas Intermediate (WTI) futures (CLc1) were up 0.1 percent at $46.92.