* European shares recover as data lifts ECB rate cut hopes
U.S. stocks seen lower after Fed falls short of dovish expectations
* Tapering remains data-dependent, market still bet on March
* BOJ reaffirms commitment to stimulus at meeting
By Marc Jones
LONDON, Oct 31 (Reuters) - Weak euro zone data that upped the pressure on the ECB to cut rates again helped European shares and bonds deflect concerns on Thursday that policy tightening remains on the U.S. Federal Reserve's agenda.
Markets had been hit with a glancing blow on Wednesday after the latest Fed meeting minutes were deemed less alarmist about the state of the economy than some had wagered, lifting both bond yields and the dollar.
The impact was mostly superficial, however, and European shares and bonds were quick to shrug off the after-effects when euro zone inflation topped off a morning of weak euro zone data.
Figures from Eurostat showed inflation in the 17-country bloc unexpectedly dropped to a near four-year low in October and unemployment stayed at a record high in September. German retail and French consumer data also came in below par.
With the ECB aiming for inflation just under 2 percent Marie Diron, a senior economic advisor for Ernst & Young, said the central bank may now have to start considering action.
"The ECB can provide more liquidity and also express unease about the strength of the euro to try to avoid the euro zone slipping into deflation," she said.
"With high debt in both the (euro zone) public and private sector, the impact of deflation would be devastating."
The pan-European FTSEurofirst 300 had started the session down 0.3 percent in the wake of the less-dovish-than-expected Fed tone, but the data changed the course of the day.
Ahead of the U.S. restart, the index was up 0.2 percent led by 0.8 and 0.4 percent gains for Spanish and Italian stocks. And as the euro headed south, the bloc's benchmark bonds slipped into positive territory.
"It (inflation data) was pretty far from consensus and this is something that could help the doves inside the ECB board ... Even the Germans could be worried," said Sergio Capaldi, fixed income strategist at Intesa SanPaolo in Milan.
Wall Street was expected to continue from where it left off on Wednesday, when it slipped after the Fed kept its $85 billion-a-month stimulus plan intact but did not sound quite as alarmed about the state of the economy as some had anticipated.
Dealers said the market had talked itself into expecting the bank would make "dovish" changes to its statement in favour of holding off longer with any monetary tightening. So it was somehow considered "hawkish" when those did not materialise.
"We interpreted the statement as neutral and balanced and think the Fed is essentially in a holding pattern," said analysts at Australia and New Zealand Bank.
U.S.-based Citibank moved its prediction for the Fed's first trimming of bond-buying forward to January and shortened the odds on a December move. But the vast majority of analysts still pointed to it holding off until later in the new year.
The Fed funds futures barely budged on the statement and short-dated Treasury yields stayed well anchored while the longer end moved up only modestly. Yields on the 10-year note were steady at 2.54 percent.
Currency moves were also moderate, with the U.S. dollar edging further away from recent lows. The dollar index was up 0.3 percent on the day and back above the 80 mark for the first time in almost two weeks and at 98.30 yen.
The soft euro zone data, which came after one ECB policy maker pointed to further cheap cash injections, meant the fall in the euro was slightly more pronounced as it dropped away from last week's peak of $1.3832 back to $1.3640.
"The good news from yesterday is that it put a stop on the dollar slide," said ABN Amro Chief Investment Officer Didier Duret. "We were risking getting into a territory where the dollar was undervalued and was creating a problem for others."
In Asia, shares had seen modest falls in line with Wall Street, but sentiment had been helped by the Bank of Japan's decision to stick with a massive stimulus program that has shown tentative signs of breaking the grip of deflation.
Given U.S. shares had reached record highs this week, the resulting profit-taking came as no surprise. Economists were already digesting a small rise in weekly U.S. jobless benefit claims as well as monthly Chicago PMI numbers.
Further afield, The New Zealand dollar bounced after the country's central bank said increases in interest rates were still likely to be needed next year, putting it well ahead of most other developed economies in tightening.
The currency rallied as much as half a U.S. cent in reaction, though the central bank also noted that a strong currency meant it might be able to wait longer before having to raise rates.
In commodities markets, spot gold faded after rising the most in a week at one stage on Wednesday. It fetched $1,325.20 an ounce on Thursday while Brent crude eased 31 cents to $109.25 a barrel.