GLOBAL MARKETS-Shares gain, Treasuries steady ahead of U.S. inflation data

(Updates 1055 GMT)

By Alun John and Scott Murdoch

LONDON/SYDNEY, April 10 (Reuters) - World stocks traded higher and bonds and currencies steadied on Wednesday, largely unfazed by ratings agency Fitch downgrading its China outlook, while traders awaited crucial U.S. inflation data due later in the day.

Europe's broad STOXX 600 index rose 0.6%, recovering after a drop the day before and heading back towards a record high, while MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.65%, and U.S. S&P 500 futures were flat.

Resilient economic data, particularly in the United States, combined with expectations that central banks will be cutting rates this year, have boosted stocks in most markets around the world.

But fears that sticky inflation in the United States may mean the Federal Reserve won't be cutting rates till later in the year remains a risk.

Wednesday's U.S. CPI data for March, due at 12:30 GMT, will therefore be important. Market pricing reflects roughly a 50% chance the first Fed rate cut will come in June, lower than a few weeks ago.

"Investors have been very focused on the trajectory of interest rates, especially in the U.S. where it has become more and more clear that the economy is in such a robust state that people are asking why we even need interest rate cuts," said Thomas Gehlen senior market strategist

"But at the end of the day, (Fed Chair) Jerome Powell is saying we're in a good place with the economy, and we shouldn't get too carried away with timing. In a year from now we'll be seeing a sustained, though moderate, trajectory of rate cuts."

U.S. Treasuries were fairly quiet ahead of that data, with the benchmark 10 year yield flat on the day at 4.362%, not too far from the four-month high of 4.464% hit Monday.

Euro zone bonds were also steady, with Thursday's European Central Bank meeting looming. Germany's 10 year Bund yield was flat at 2.37%.

European rates have largely traded in line with U.S. peers in recent months, but a strong U.S. inflation print, followed by more hints that the ECB could cut rates in June, might see them diverge.

Eyes in Europe were on defence stocks as well, which were down 0.3%, stabilising somewhat after tumbling 3.8% the day before as traders grew nervous about the sector's record-breaking run and analysts pointed to potentially stretched valuations.

CHINA OUTLOOK

Also drawing attention on Wednesday was Fitch affirming China's sovereign rating at 'A+' though the outlook was downgraded to negative and it forecast economic growth this year would slow.

Chinese onshore blue chips dropped 0.8%, but Hong Kong's Hang Seng index rose 1.85%.

"These downgrades reflect mostly the current cyclical situation in China, they are not forward looking. This means that, as and when China's economy improves, they will change their rating outlook to positive," said Chi Lo, BNP Paribas Asset Management senior strategist. He added the Fitch move followed a similar call by Moody's in December.

In currency markets, the Japanese yen was pinned just on the strong side of the 152 per dollar level. Traders fear intervention from Japanese authorities to support the currency should it break too far or too quickly past that level.

Even if Tokyo does intervene, yen strength could be short-lived thanks to the wide gap between rock bottom interest rates in Japan and those elsewhere.

"The Bank of Japan will be taking very small steps at a time when a lot of global central banks are contemplating cutting rates (meaning) any yen moves higher will be limited," said Marcella Chow, global market strategist at JPMorgan Asset Management.

Elsewhere in currency markets, the dollar index, which tracks the unit against six main peers, was flat at 104.09 having poked its head above 105 in early April before retreating.

In commodities, aluminium prices hit their highest in 14 months and other industrial metals touched new peaks. {MET/L]

U.S. crude was up 0.4% at $85.68 a barrel. Brent crude rose 0.4% to $89.8 per barrel.

Gold dipped slightly and spot gold traded at $2,347.9 per ounce, still hovering close to all-time highs.

(Reporting by Scott Murdoch and Alun John; Editing by Jacqueline Wong, Miral Fahmy, Ros Russell and Christina Fincher)