Dollar softens on Fed easing hopes, shares gain

LONDON (Reuters) - A softer dollar kept the euro near three-week highs on Monday and European shares followed Asian markets higher as disappointing U.S. growth raised expectations that the Federal Reserve would consider more monetary easing.

But trading was expected to be light ahead of May Day holidays throughout Europe on Tuesday and before the European Central Bank's meeting later in the week where policymakers will consider the declining health of the region's economy.

"The weaker-than-expected U.S. GDP report has re-heightened speculation over the prospect of further monetary stimulus from the Fed, weighing upon the dollar," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ, Ltd.

The speculation sent the dollar to a two-month low against a basket of currencies (.DXY) of 78.64, leaving the euro mostly steady around the $1.3245 mark.

Spanish 10-year bond yields were trading just below the 6 percent level after the government reported the economy had contracted by 0.3 percent in the first quarter, which was better than forecast.

European shares climbed for a fifth straight session, tracking the firmer markets globally with the FTSE Eurofirst (.FTEU3) index of top European shares up 0.2 points. The MSCI world equity index (.MIWD00000PUS), was up 0.15 percent at 329.93 for a gain of just over 10 percent in the year to date.