British and Japanese shares fell on yesterday as holidays closed many markets, while the euro raced to a record high against the yen, boosted by expectations the European Central Bank will soon raise interest rates again.

May Day holidays shut most European Bourses along with Hong Kong, South Korea, India, Singapore, Malaysia and Thailand. Chinese trading was closed for the country's Golden Week.

The Turkish lira and shares, which were rattled on Mondathe day before, fell more than one percent early on before stabilising as investors, worried by a political crisis, awaited a court ruling on a challenge to the presidential election process.

Most action globally was on currency markets where the euro hit a record high against the yen and Swiss franc, and clung near a record peak versus the dollar.

The euro has been strengthening on the back of a robust economy with higher interest rate expectations and on assumptions that the US economy is slowing.

US data on manufacturing and pending home sales, due later in the day, were in focus for signs of whether the US Federal Reserve will be prompted to cut rates.

“There's been a lot of questions around whether the euro can break higher, particularly against the dollar, but I think the story with the euro is that the fundamentals continue to look strong relative to most of its G10 counterparts,” said Lehman Brothers currency strategist Phyllis Papadavid.

<B>Looking for the next catalyst</B>

The euro climbed to the highest level since its 1999 launch against the yen, rising to 163.34 yen from around 163.10 yen in late U.S. trade.

It was flat against the dollar at $1.3636, but still within sight of last week's record high above $1.3680.

Britain's top share index slid into May by dropping 0.6 percent, tracking a downbeat close on Wall Street.

This dragged the FTSEurofirst 300 down 0.11 percent although most components were not trading because of the holiday throughout most of the rest of Europe.

“We're struggling to consolidate at the moment,” said Richard Hunter, head of UK equities at Hargreaves Lansdown. “Sentiment's a bit lacklustre,” he added. “It's really a question of looking for the next catalyst.”

Earlier, Japan's Nikkei average ended 0.7 percent lower, weighed down by weak profit forecasts. It lost 125.43 points to 17 274.98. The broad TOPIX index fell 0.46 percent to 1 693.25.

European bond futures were not being actively traded due to the holiday. The benchmark 10-year euro zone government bond yield was flat at 4.144 percent.