Writes through, adds details, investor comment, updates prices

By Danilo Masoni

MILAN, July 1 (Reuters) - World stocks edged lower on the first day of the third quarter on Wednesday after a strong rally, as investors awaited remarks from Fed Chair Kevin Warsh, while softer euro zone inflation cooled bets on further interest rate hikes.

Oil prices stayed near pre-war levels as investors weighed signs that contacts between Iran and Washington aimed at reaching a final deal to end their conflict were continuing.

Traders also watched for possible Japanese intervention after the yen hit fresh 40-year lows against the dollar.

The MSCI World Price Index .MIWO00000PUS slipped 0.1% in European afternoon trade after posting its strongest quarter in around six years, up 13% on rallying chipmakers and tech stocks.

U.S. futures and European shares declined slightly.

"Iran is no longer a problem. There is no peace, but there is no war either," said Carlo Franchini, head of institutional clients at Banca Ifigest, saying he viewed another European Central Bank interest rate hike later this month as unlikely.

Data backed that view. Euro zone inflation eased more than expected in June, further reducing pressure on the ECB to raise rates again after last month's first hike in nearly three years.

Inflation in the bloc slowed to 2.8% in June from 3.2% in May, coming well below expectations for a 3.0% reading, as food, energy and services price pressures all eased.

Traders marginally pared bets on further tightening after the figures and were pricing in around 23 basis points of additional ECB rate increases by year-end.

Europe's region-wide STOXX 600 .STOXX was down 0.3% at 1120 GMT, steadying after a 10% quarterly rise that marked its strongest performance since late 2020, with sentiment towards the region helped in recent weeks by falling energy prices.

"The second quarter GDP data isn't going to be great. But clearly prospects of the Strait of Hormuz (opening) and lower oil prices is a major positive factor for Europe," said Kevin Thozet, member of the investment committee at Carmignac.

AWAITING WARSH

Investors will be keen to hear what Warsh says when he appears at the ECB's annual central banking forum in Portugal for clues on the outlook for U.S. interest rates, ahead of Thursday's key U.S. jobs data.

Warsh has long been against the Fed providing forward guidance and may give little away on his policy intentions.

Lauren van Biljon, a senior portfolio manager at Allspring Global Investments, said underlying inflation trends suggested the Fed may not need to tighten policy further.

"If the energy price shock starts to roll off in the month-on-month inflation numbers, and our U.S. analysts are still pretty confident that shelter and rent are disinflationary factors through to the end of this year, it looks like the Fed will be on hold," she said.

Futures 0#FF imply a 33% chance of a Fed rate hike at its meeting later this month, while the probability of a September move is priced at 67% to 88%. 0#USDIRPR

The benchmark 10-year Treasury yield US10YT=RR rose 4.9 basis points (bps) to 4.471%, while S&P 500 ESc1 and Nasdaq NQc1 futures declined 0.1-0.3%.

Markets paused after Wall Street posted its strongest quarter since 2020, driven by an 88% surge in the Philadelphia Semiconductor Index .SOX.

With earnings season starting in mid-July, investors are banking on strong tech results to justify lofty valuations and continued inflows into the sector.

Goldman Sachs said the consensus is for earnings per share to grow 22% from a year earlier, with AI infrastructure stocks accounting for nearly 60% of that increase.

In Asia, Japan's Nikkei .N225 gained 0.6% after surging 37% last quarter, with strong tech demand lifting sentiment among big manufacturers to an eight-year high.

South Korea's main index .KS11 fell about 2%, following a 68% quarterly rally driven by AI-fuelled chip demand.

The rise in U.S. yields helped lift the dollar as high as 162.84 yen, a new four-decade high. The climb has drawn threats of intervention from Tokyo, though authorities appear reluctant to act, having spent almost 12 trillion yen ($74 billion) through April and May to little lasting effect.

The euro EUR=EBS was down 0.2% at $1.1394.

Germany's 10-year bond yield DE10YT=RR, the euro zone benchmark, rose 2 basis points to 2.931%, while its two-year bond yield DE2YT=RR, more sensitive to rate expectations, was unchanged at 2.532% after the inflation data.

Brent crude LCOc1 was down around 1% at $72.27 a barrel, reversing earlier gains, while gold XAU= was steady, trading slightly above $4,000 an ounce after a difficult quarter.