Updates at 1208 GMT

By Samuel Indyk and Ankur Banerjee

LONDON, June 26 (Reuters) -European stock markets turned loweron Wednesday as the market braced for a French election and a key U.S. inflation reading, while the yen tumbled to its lowest since 1986, keeping traders on alert for possible intervention by Japan's central bank.

Risk sentiment in Europe worsened through the European morning with markets stillsensitive to the global monetary policy outlook, and a jump in consumer inflation in Australia overnightdid little to soothe nerves.

The pan-European STOXX 600 .STOXX was last down0.4% after earlier touchingits highest level since June 13, shortly after French President Emmanuel Macron announced the snap parliamentaryelection.

France's CAC 40 .FCHI was down 0.9%,Germany's DAX .GDAXI was down 0.2%and Britain's FTSE 100 .FTSE slipped0.2%.

"The turnaround in the market - which some might see as relatively stable - could be explained by a tug of war between bulls who are cashing in recent gains and bears who are resurfacing on the back of mounting downside risks," said Stephane Ekolo, equity strategist at TFS Derivatives.

"French election, sticky inflation, China slowdown and geopolitical tensions, to name a few," he added.

U.S. equity futures were little changed, while MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS crept up to 567.59,just shy of the two-year high of 573.38 it hit last week.

Japan's Nikkei .N225 and Taiwan stocks .TWII rose, led by chipmakers, tracking arally in the tech-heavy Nasdaq .IXIC on Tuesday, with Nvidia NVDA.O surging more than 6%, snapping out of a three-session tailspin that had erased about $430 billion from its market value.

On the U.S. monetary policy front, Federal Reserve officials haveurged patience on interest rate cuts, with governor Lisa Cook declining to say when the Fed would be able to act.

Fed Governor Michelle Bowman reiterated her view that holding the policy rate steady "for some time" would probably be enough to bring inflation under control.

The comments, along with data showing a stable housing market, kept expectations in check over when and by how much the Fed would cut rates.

"(The) worst thing the Fed could do is ease and then the data continues to firm the inflation numbers back around," said Rob Carnell, ING's regional head of research for Asia-Pacific.

Markets were pricing in 47 basis points of easing this year, with a rate cut in September pegged at 72% probability, CME FedWatch tool showed.

Traders await Friday's release of the U.S. personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, with economists polled by Reuters expecting the annual growth to ease to 2.6% in May.

YEN HITS 38-YEAR LOW

In the currency market, the yen JPY=EBS fell to 160.39per dollar, its weakest level since 1986, sparking speculation that Japanese authorities could intervene to strengthen the currency.

In April, a fall to 160.245 per dollar was enough to prompt Tokyo to spend roughly 9.8 trillion yen to support the yen.

The latest slide in the yen has come in the wake of the Bank of Japan's (BOJ) decision this month to hold off on reducing bond-buying stimulus until its July meeting.

The BOJ, though, is dropping signals that its quantitative tightening plan in July could be bigger than markets think, and may even be accompanied by an interest rate hike.

"What they said last time (at the June policy meeting) was just so insubstantial that the market couldn't help but be disappointed by it," said ING's Carnell.

"We need to see the BOJ coming through with an actual hike. We still think that July looks a good month," Carnell said.

Meanwhile,the Aussie rose to as high as $0.66885 after hotter-than-expected inflation data, leading markets to narrow the odds on another rate hike as early as August.

It was the second hot inflation reading in two days, afterCanadian CPI unexpectedly accelerated to 2.9% in May, a report showed on Tuesday.

The dollar index =USD, which measures the U.S. currency against six peers, rose to105.94,while the euro EUR=EBS softened to $1.0690.

In commodities, oil prices rose, with Brent futures LCOc1 0.5%higher at $85.36 a barrel, while U.S. West Texas Intermediate futures CLc1 were up 0.5%at $81.25 per barrel.

Gold prices eased to $2,315 per ounce, but remain up 12% this year, having touched a record high of $2,449.89 last month. GOL/

Reporting by Samuel Indyk and Ankur Banerjee; Editing by Shri Navaratnam, Himani Sarkar, Alex Richardson and Gareth Jones

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