MORNING BID EUROPE-Italy: government options running out

* A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own.

LONDON, May 3 (Reuters) - Italy is finally getting closer to knowing whether any government at all can be forged from March's inconclusive elections. After a populist coalition between the winning 5 Star movement and far-right League turned out (for now) to be a non-starter, the outgoing centre-left Democratic Party (PD) will decide today whether to open government negotiations with 5-Star. The chances of that do not look good, given the outright hostility of influential ex-party leader Matteo Renzi to any such tie-up. To the relief of financial markets, Italian President Sergio Mattarella yesterday said he would not call early national elections in June and said his preferred solution to the logjam was a caretaker government that would at least be able to put together a budget for next year.

Such are the low expectations of British PM Theresa May's Conservatives in today's local elections that it would take a spectacularly bad result to loosen her already tenuous grip on national power. That might still come about but the opposition Labour Party's cause has not been helped in recent weeks with a rash of headlines about anti-Semitic leanings within its ranks. Brexit will inevitably be part of the sub-text of the vote: battlegrounds will include once staunch Conservative London boroughs such as Wandsworth, which voted overwhelmingly to remain in the EU, while outside the capital any swing to the Conservatives in pro-Brexit areas will be taken as an endorsement of May's EU exit strategy.

The Armenian stand-off may take a decisive turn today if de facto protest leader Nikol Pashinyan receives assurances from the ruling Republican Party that it will back him for premier in a new parliamentary vote due next week. He has called on his supporters to take a breather today - but told them to be ready to go back onto the streets if no such assurance is forthcoming.

Flash eurozone inflation for April is due out at 0900 GMT. Analysts see another weak reading at 1.3 percent, which will complicate yet further the ECB's goal of removing stimulus: ECB chief Mario Draghi said he expected it would hover around 1.5 pct for the rest of the year.

MARKETS AT 0655 GMT With (Other OTC: WWTH - news) the Federal Reserve’s latest meeting doing little to shake existing thinking in world markets, the focus has shifted back to the simmering US-China trade standoff and the heaviest part of the European earnings season in particular. The simplest takeaway from the Fed is that markets remained priced for two more interest rate rises this year, with the next one next month. Fears that the Fed’s statement would flag concern about accelerating headline inflation proved unfounded and, if anything, the stress that the central bank put on its “symmetric” inflation target was read as it being more relaxed about recent price trends. Ten-year Treasury yields are little changed this morning at about 2.97 percent and the dollar has dialled back slightly from its recent peaks. Euro/dollar bounced from a low of $1.1936 on Wednesday, though it remains below $1.20 as traders awaited flash April inflation readings for the euro zone later. The U.S. Treasury quarterly refunding announcement also disappointed some who felt it might have seen a push of debt sales further out the maturity spectrum. Instead it introduced a new 2-month Treasury bill to soak up the still-heavy reliance on short-dated debt.

Dollar strength and jitters about further U.S. regulatory action against Chinese telecoms firms saw the S&P500 slip 0.7 percent overnight, though futures are up slightly this morning. Shanghai shares are up 0.5 percent, meantime, as the high-level U.S. trade delegation – including Treasury Secretary Mnuchin – settle down to talks in Beijing. Hopes of a breakthrough this week were downplayed, with the officials scheduled to leave again on Friday.

Even (Taiwan OTC: 6436.TWO - news) though Tokyo was closed, other Asian bourses traded heavily. HK stocks were down more than 1 percent and Seoul’s Kospi index was down 0.7 percent. Anxiety about a unilateral U.S. withdrawal from the international Iran nuclear deal kept oil prices underpinned, with Brent crude holding above $73. European stock futures are expected to open slightly lower. Even though the euro has started to weaken in the last couple of weeks, its strength has weighed on company results during the first quarter. Today, Bayer (IOB: 0P6S.IL - news) shares are seen falling 1-2 percent after the group cut its full year guidance today, blaming the strong currency. Adverse FX also led to a 2 percent revenue drop at healthcare group Fresenius (Swiss: FRE-EUR.SW - news) (down 1 percent premarket) and resulted in a lower-than-expected core profit for Belgian chemicals group Solvay (down 1-2 percent premarket).

Elsewhere, emerging markets remain under pressure, with Turkey's lira setting a new record low against the dollar ahead of April inflation numbers later. It's been a torrid week for Turkey, with a sovereign credit rating downgrade, data showing the first manufacturing contraction for 14 months and a surge in the country's trade deficit. * Service sector PMI business surveys from around the world. Thurs/Fri * Europe corp events: AXA (Paris: FR0000120628 - news) sales, Bayer, BBL (Shenzhen: 002776.SZ - news) , Coloplast (LSE: 0QBO.L - news) , Eurazeo (LSE: 0HZC.L - news) sales, Ferrari (Xetra: 30092157.DE - news) , Fresenius, Glencore (Frankfurt: 8GC.F - news) sales, Hermes sales, Hochtief (IOB: 0EPW.IL - news) , IMI (LSE: IMI.L - news) , Infineon (Xetra: 623100 - news) , Kerry, Legrand (LSE: 0MW7.L - news) , Logitech, Loomis (LSE: 0JYZ.L - news) , Osram Licht, Smith & Nephew (Frankfurt: 502816 - news) trading, Solvay (LSE: 0NZR.L - news) , Thales (LSE: 0IW5.L - news) sales, Veolia Environment sales, Adidas (IOB: 0OLD.IL - news) , Stada

* UK local elections

* Spain auctions government bonds

* EZ April flash inflation

* European Commission releases latest economic forecasts

* ECB policymakers Constancio and Coeure speak in Frankfurt; Bank of France chief Villeroy speaks in Paris

* UK auctions 2023 gilts

* Norges Bank, Czech National Bank policy decisions

* German Chancellor meets ESM chief Regling in Berling (LSE: 102409.L - news) to discuss euro zone reforms

* Turkey April inflation

* US Q1 earnings: Berkshire Hathaway (Sao Paolo: BERK34.SA - news) , DowDupont, PG&E, CBS, Motorola, Xerox (Swiss: XRX.SW - news) , Kellogg (Hamburg: 944624.HM - news) , ICE, MSCI (Frankfurt: 3HM.F - news) , Cigna,

* US March trade data, Q1 labour costs, March durable goods orders, weekly jobless claims

* Canada March trade

* Chile (Stuttgart: 704599.SG - news) central bank policy decision

* Brazil March industrial output (Editing by Gareth Jones)