European stocks slipped back from their highest level this year on Tuesday despite gains on Wall Street overnight and positive data on the US economy as fears that a recovery has been priced in kept equity markets muted.

Evidence from Monday that US businesses are romping ahead also failed to boost the dollar. It remained under pressure from concerns over the US current account deficit and Washington?s handling of post-war Iraq.

?US asset markets are not performing in a way they should have when the US is truly leading a global recovery because the current account deficit is too high and there have been surprises in a recovery in other parts of the world,? said Jim McCormick, head of foreign exchange research at Lehman Brothers.

?Concerns about Iraq and trade sanctions are also weighing.?

US stock index futures indicated Wall Street would open lower after a more than one percent rise in the Dow Jones on Monday.

Bonds were mixed in thin trade with the market looking ahead to key data later this week including US jobless claims on Thursday and unemployment and payrolls on Friday.

With the US looking set to drive faster global growth, investors mulled the prospect of borrowing costs globally rising sooner rather than later, eyeing decisions in Canada and Australia later on Tuesday.

The Bank of Canada is expected to leave interest rates steady at 2.75 percent at 1400 GMT. The Reserve Bank of Australia is expected to raise rates by 25 basis points to 5.25 percent at 2230 GMT.

The Reserve Bank of New Zealand, European Central Bank and Bank Of England are expected to leave rates steady later in the week.

European stocks took their cautious tone from Asia where indices were mixed despite the data showing US factory activity growing at its fastest pace since 1983 and construction spending at a record high.

By 1330 GMT, the FTSE Eurotop 300 index was down 0.35 percent at 942.80. points, having hit a new 2003 high of 948.2 points.

The pan-European benchmark closed on Monday at its highest level since September 11, 2002, the culmination of a roughly 40 percent rally since a six-year low in March as investors bet on economic recovery. The narrower DJ Euro Stoxx 50 index was flat at 2,672.7 points.

Asian markets ended mixed. Japan?s Nikkei 225 index ended flat while the TOPIX was up 0.3 percent. Outside Japan, Singapore and Hong Kong were down with the broad MSCI index of Asian shares up 0.9 percent at 210.81.

The dollar held steady versus the euro on Tuesday, just above the previous day?s record low as evidence of a strong US recovery was again outweighed by lingering concerns about US economic imbalances.

?Overall, it?s a quiet market today,? said Tim Fox, market strategist at National Australia Bank in London.

?Markets are awaiting rate decisions from Canada and Australia and the US jobs report later,? he said.

By 1330 GMT the dollar was trading at $1.1973, around the previous session?s closing levels but up from a record low around $1.2040 set in the previous session.

Against the yen, the dollar was also steady at 109.28, compared with 109.35 yen late on Monday.

European government bond yields inched down, recovering ground from the previous day?s sharp sell-off as bargain hunters moved back into the market.

The interest rate-sensitive two year Schatz yield was down 3.6 basis points at 2.83 percent. The benchmark 10-year Bund was down 0.8 basis points yielding 4.48 percent.

The weak dollar helped support spot gold. It was trading at $401.65/$492.30 a troy ounce, down from its New York close at $402.25/$403.

Crude oil futures were up 13 cents to $28.39 after dropping sharply on Monday ahead of a meeting of producer cartel OPEC in Vienna this week and US fuel stock data.

By Simon Johnson