European shares are expected to ease on Tuesday after a stark inflation warning from U.S. Federal Reserve Chairman Ben Bernankeknocked Asian stocks and boosted the dollar.
Financial spreadbetters expect Britain's FTSE 100 to open 20 to 26 points down; Germany's DAX to open 17 to 24 points lower and France's CAC-40 to open 17 to 28 points down. European shares have fallen now for four straight sessions.
"At this point, the markets remind me more and more of the bear market in 2001 and 2002. The rallies are sharp and sudden, but the very next morning we are back down again," said City Index strategist Tom Hougaard in a note.
U.S. stocks rose on Monday as better-than-expected sales figures from McDonald's Corp and a surprise rise in pending home sales helped the Dow Jones stage a modest rebound after Friday's 400-point drop.
But Bernanke's signal in a speech after U.S. market hours on Monday that the central bank would act strongly to resist rising inflation heightened expectations for U.S. rates to rise, which could undermine equities in the longer run.
"We've seen the S&P (futures) come off, we've seen a bit more selling in Asia ... with the dollar strength and those (Bernanke) comments," one trader said.
Crude oil holding above $135 a barrel will keep the energy sector in focus, while the euro's slide from Friday's six-week highs against the dollar could provide for export-sensitive sectors such as autos.