European stock rally pauses, gold holds above $4,000

PARIS, Oct 9 (Reuters) - The rally in European stocks paused on Thursday, with the FTSE 100 dragged down by banking shares, while investors weighed up the risk of a market correction.

Wall Street hit fresh record highs in the previous session, as investors bet on gains in technology stocks, despite a U.S. government shutdown leaving traders without some key economic data.

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The U.S. shutdown and political risk in Japan and France have made investors nervous this week, creating safe-haven demand which, along with a weaker dollar, has driven gold above $4,000 for the first time .

STOXX DOWN 0.2% ON THE DAY

U.S. stock futures dipped, pointing to a mixed open for Wall Street.

"It just feels like the mood is a little bit fragile," said Fiona Cincotta, senior market analyst at City Index.

"It does feel that we’re lacking substance to any move that we’re seeing, because we’re not getting that data out of the U.S.”

French bonds held on to Wednesday's gains after President Emmanuel Macron said that he would name a new prime minister by Friday evening, which raised hopes that the country could avoid a snap election and agree a budget.

The 10-year French government bond yield was at 3.4962% , while the benchmark German 10-year yield was 2.679% .

The dollar index edged up 0.1% to 98.978, but was still down around 8.9% on the year overall. The euro was in its fourth day of declines, down 0.1% at $1.1612 .

The Japanese yen hit an eight-month low of 153 per dollar overnight, but was last a touch stronger at 152.75 .

An economist advising the policy circle of Japan's likely new premier Sanae Takaichi told Reuters that the yen's current weakness benefits the economy, and the hit to households from rising import costs can be offset by aggressive fiscal spending.

Oil prices were steady, as traders waited to see if the deal between Israel and Hamas would hold.

Gold was little changed, at $4,039.59 .

International Monetary Fund Managing Director Kristalina Georgieva on Wednesday forecast a slight slowdown in global growth in 2025 and 2026, warning investors not to get too comfortable, but said the world economy has proven more resilient than expected.

China tightened its export controls of rare earth technology, expanding April's restrictions.

Reporting by Elizabeth Howcroft, editing by Ed Osmond, Kirsten Donovan

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