European shares edged lower from 10-week highs and the dollar softened on Thursday as worries about the next step in U.S. monetary policy offset a brighter economic picture in Europe, Reuters reported.
Markets have largely positioned for the Federal Reserve to begin paring back its $85 billion monthly stimulus in September but conflicting signals from policy makers and mixed economic data have undermined this view.
Late on Wednesday, the president of the St. Louis Fed, James Bullard, said he had not yet made up his mind on whether next month's policy meeting would be too soon to curb the asset purchases, known as quantitative easing or QE.
"Markets were absolutely convinced we would see about a 20 percent reduction in the run rate of QE in the September meeting," said Mike Ingram, market commentator at BGC.
In response to the Bullard comments, the dollar at one point tumbled about 0.5 percent against the Japanese currency to a low of 97.63 yen. The fall was exacerbated by Japanese government efforts to stamp out talk of corporate tax cuts which might have helped boost the world's No. 3 economy.
Against a basket of major currencies, the dollar was down 0.3 percent, although it is off its lows of last week.
An early end to the Fed's bond buying is expected to boost U.S. Treasury yields, which should support the dollar, but would hurt shares and commodities boosted by central bank liquidity.
Signs of recovery in Europe and growth in Britain supported the region's equity markets although investors have become wary over the implications for central bank policy.