AMERICAN MARKETS OUTLOOK: U.S. stock markets are expected to open lower Thursday, following sharp falls by shares in Tokyo and Europe, as speculation continues over the direction of global interest rates.

"A controlled fall is more likely than the panic that prevails in Europe," says David Buik at Cantor Index, following declines early Thursday in London, Frankfurt and Paris.

Economic data set for release Thursday include jobless claims, wholesale trade, the DJ-BTMU business barometer and money supply. National Semiconductor and Take-Two are among companies set to post financial results.

FinSpreads is calling the Dow Jones Industrial Average to open down 60 points at 10,870, below the recent support level of 10,913. The Nasdaq 100 is seen opening down 16 points at 1549 and the S&P 500 down at 8 at 1247.5.

"We could well see Wall Street tumble to the next support level at around 10,734," says FinSpreads' Angus Campbell.

EUROPEAN MARKETS: European shares are sharply lower midday amid inflation fears and ahead of interest rate decisions Thursday from the Bank of England and the European Central Bank. In London, the FTSE 100 is down 2.2% at 5581.50 on inflation fears, despite weaker-than-expected U.K. industrial production data. In Frankfurt, the DAX is down 2.0% at 5431.02, with traders also citing inflationary fears. In Paris, the CAC is down 2.4% at 4709.50.

Bunds and gilts are higher as investors move out of equities and emerging markets. The September bund future is up 0.45 at 116.31, while the September gilt is up 0.28 at 109.79.

In the currency market, news that the Al-Qaida leader in Iraq, Abu Musab al-Zarqawi, has been killed is helping to keep the dollar on the rise. The dollar is up at Y113.78, the euro is down at $1.2772 and the pound is up at $1.8486.

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TOP STORIES:

IRAQI PM SAYS AL-ZARQAWI KILLED IN AIRSTRIKE: Abu Musab al-Zarqawi, al-Qaida's leader in Iraq who led a bloody campaign of suicide bombings and kidnappings, has been killed in an air raid north of Baghdad. (AP)

RICHEMONT 2006 NET FALLS, BUT WATCH DEMAND STRONG: Swiss luxury goods maker Compagnie Financiere Richemont S.A. (CFR.VX) said full-year net profit fell 10% due to extraordinary effects while operating profit was a third higher on soaring demand for its watches. (By Martin Gelnar)

UK MANUFACTURING SEES UNEXPECTED SLUMP: The U.K. manufacturing sector suffered an unexpected slump in April, with none of the sector's sub-industries achieving positive growth. (Data Snap by Andrew Peaple)

BOUYGUES PROFIT RISES ON BUILDING BOOM: Bouygues SA's (12050.FR) net profit rose by a better-than-expected 54% in the first quarter, as the French building-to-broadcasting conglomerate continued to profit from robust construction markets. (By Greg Keller)

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INSIGHT & ANALYSIS FROM DOW JONES NEWSWIRES:

=FOREX FOCUS: As this Thursday's European Central Bank meeting creeps ever closer, the chances of a 50 basis point interest rate hike is receding. (By Nicholas Hastings)

=THE SKEPTIC: Marc Bolland's appointment as CEO of supermarket chain William Morrison may draw a line under the long running succession wrangle, but it doesn't herald a much-needed change of direction. (By Howard Wheeldon)

=CHARTING EUROPE: July ICE Brent crude futures have breached their end of May-to-June flag formation and are heading to below the $67.63-a-barrel May low. (By Axel Rudolph)

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STILL TO COME

ET/GMT COUNTRY/PERIOD

0700/1100 UK Bank of England Monetary Policy
Committee interest rate decision
0800/1200 US Pres Bush speaks at Natl Hispanic
Prayer Breakfast in Washington
0830/1230 US June 3 Jobless Claims
0900/1300 ECB Governing Council meeting
begins in Madrid
1000/1400 US April Wholesale Trade
1000/1400 US May 27 DJ-BTMU Business Barometer
1030/1430 US June 2 US Energy Dept Natural Gas Stocks
1145/1545 ECB interest rate decision in Madrid
1630/2030 US June 3 Money Supply

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OTHER NEWS:

Barclays PLC (BCS) appointed a senior Citigroup Inc. (C) executive in a bid to reinvigorate its U.K. retail banking business, which has been losing share of a hotly-contested mortgage market.(By Victoria Howley)

William Morrison Supermarkets PLC (MRW.LN) said late Wednesday it has appointed senior Heineken NV (00916.AE) executive Marc Bolland as its new chief executive to help turn around the troubled U.K. retailer. (By Lilly Vitorovich and Elena Berton)

Endemol Entertainment Holding NV (34569.AE), the Netherlands-based TV production company that makes reality program Big Brother, said its chief executive has resigned, fanning takeover speculation that has surrounded the company in recent weeks. (By Kay Larsen)

Cable & Wireless PLC (CW.LN), the U.K.-based telecommunications company, said it will stop selling broadband to retail customers and focus instead on wholesale and corporate customers. (By Kay Larsen)

U.K. healthcare software group ISoft Group PLC (IOT.LN) added to its woes by announcing a change to accounting policy that will slash profits. (By Gren Manuel)

U.K. house prices rose at subdued pace on the month in May, while the annual increase was the highest since March 2005, lender Halifax said. (Data Snap by Ilona Billington)

Anglo-Swedish drugmaker AstraZeneca PLC (PLC) said it expects to grow sales of its flagship drugs over the next five years in line with projected market growth, while absorbing generic competition. (By Elena Berton)

Halfords PLC (HFD.LN) posted a 3.6% rise in full-year pretax profit and said continued sales growth and an improvement in its margin performance in the current year gave it confidence for the future. (By Michael Carolan)

Engineering Group FKI PLC (FKI.LN) said that full-year pretax profit rose 21.6% supported by heightened demand and increased efficiency despite higher raw materials and energy costs. (By Anita Likus)

Collins Stewart Tullett PLC (CSTL.LN) said that the company has had an excellent start to the current financial year. Trading across both the group's businesses has been well ahead of the same stage of the previous year.