* Focus on ECB meeting on Thursday
* European share briefly touch 5-yr high
* Euro softens, seen vulnerable to ECB policy easing
* Commodities supported by hopes of Fed taper delay
European shares touched a fresh five-year high and the euro dipped on Tuesday with speculation mounting that the European Central Bank will signal an easing of monetary conditions at its policy meeting this week.
Still sluggish economic growth across the 17-nation currency bloc and a sharp dip in inflation has increased confidence among many investors that the ECB will at least lay the groundwork for a policy shift at Thursday's gathering.
"We definitely think they are going to signal something," said Luca Jellinek, head of European interest rates strategy Credit Agricole CIB. "For the markets that's the equivalent of doing it really."
The pan-European FTSEurofirst 300 index set a five-year high for the third time in a week in early trading before steadying again near its previous close as traders worried about extending the rally further.
"We shouldn't see much action before Thursday" when the European Central Bank meets, said Guillaume Dumans, co-head of research firm 2Bremans.
The euro eased 0.2 percent to trade just under $1.35, hovering not far from a seven-week trough of $1.3442 set on Monday when economic data pointing to broadening but still weak recovery across the region.
A report from the European Commission later in the day on the fiscal position and growth outlook for the 17-nation currency bloc could prompt some action. As could producer price data for the region which may add to evidence of a weaker inflation outlook.
CENTRAL BANKS RULE
The likelihood of looser policy from the ECB comes as markets increasingly price in the prospect of the U.S. Federal Reserve maintaining its huge equity and commodity friendly stimulus into next year.
Public comments by Fed officials on Monday stressed that the U.S. central bank was in no hurry to taper its asset purchases and would only begin when the U.S. economy showed clear signs of improvement.
The prospect of both euro zone and U.S. central banks supporting the global economy helped keep MSCI's world equity index near its best level since 2008, though the broad gauge of global equity markets was flat on Tuesday.
It also saw the dollar index, which measures the greenback against six major currencies, hold largely steady, just above a nine-month low of 78.998 hit on Oct. 25.
Against the Japanese currency, the dollar fell about 0.3 percent to 98.25 yen following a reaffirmation by Japan's central bank on Monday that it would do everything necessary to reflate its economy. [ID:nL3N0IQ2IQ}
Only China looked likely to buck the tend for more monetary policy support. New Premier Li Keqiang said in a speech published in full late on Monday that adding extra stimulus would be more difficult since printing new money would cause inflation.
"His comments are different from what people were expecting. This is a shift from what he said earlier this year about bottom-line growth," said Hong Hao, chief strategist at Bank of Communications International.
Asian shares struggled as a result slipping about 0.2 percent, though Japan's Nikkei stock average bounced off its lows and managed a 0.2 percent gain.
However, Australian shares bucked the downtrend to head back toward last month's five-year high after the Reserve Bank of Australia kept its cash rate steady at a record low of 2.5 percent as widely expected.
In commodity markets the ultra-loose monetary policy prospects helped gold edged up 0.1 percent to $1,315.59 an ounce. Copper added 0.2 percent to $7,165 a tonne.
Brent crude was slightly firmer at $106.23 a barrel but close to the four-month low touched on Monday on worries over a prolonged outage from key oil exporter Libya.