(Reuters) - European shares hit a 14-year high on Wednesday before a meeting at which the European Central Bank is expected to affirm its loose policy stance, as weak data from China raised prospects of monetary easing there too.

Financial markets remain driven by policy action from the world's major central banks, with Tuesday's softer U.S. retail sales supporting the view that the Federal Reserve will not rush to raise interest rates in June.

The ECB is almost certain to keep rates unchanged at record lows at its meeting later in the day, and also tipped to quash talk it might scale down sooner than planned the 1 trillion euro quantitative easing scheme it launched last month.

A banking source told Reuters on Tuesday the ECB raised the cap on emergency liquidity assistance that Greek banks can draw from the country's central bank, taking some of the heat off Athens.

Data earlier in the day showed growth in China's economy slowed to a six-year low of 7 percent in the first quarter. That was better than many feared after a woeful trade performance in March.

But both retail sales and industrial output missed forecasts, with the latter expanding at the slowest pace since the global financial crisis in 2008, intensifying Beijing's struggle to find the right policy mix to shore up activity.

"Unless one can make a very good case or suggestion that we'll see a rebound in April or May then it does look as if more easing from the People's Bank is on the cards," said Investec chief economist Philip Shaw.

The pan-European Eurofirst 300 index of leading shares rose 0.8 percent to 1,653.19 points, its highest since late 2000. News that Finnish telecom equipment maker Nokia agreed to buy France's Alcatel-Lucent helped the push higher.

Britain's FTSE 100 index hit a fresh high, helped by gains in fashion chain Next, retailer Dixons Carphone and drugs firm AstraZeneca

Earlier in Asia, Shanghai stocks were volatile, falling more than 1 percent after the data but recovering subsequently to be marginally positive for the day.

Shanghai, which has been rising for six weeks running as investors have chosen to focus on the prospect of extra policy stimulus, looks overdue for some consolidation, some analysts say.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2 percent, while Japan's Nikkei was all but flat.


The euro fell against the dollar before the ECB's policy meeting, after which President Mario Draghi is expected to reiterate the bank intends to fully deliver its QE program as risks to growth remain and inflation subdued.

The euro was down 0.4 percent at $1.0610 and pared its gains against the yen to trade at 126.85 yen. The common currency struck a one-month low against the dollar of $1.05205 on Monday.

Yields on German 10-year bonds, which set the benchmark for euro zone borrowing costs, held near record lows around 0.13 percent. Germany is expected to pay close to nothing when it sells 10-year bonds later in the day.

"There is a belief that the 10-year Bund yield can get to zero if not negative before bottoming out, and we have no objection to this trajectory given the steady and sure momentum behind the trade," said Padhraic Garvey, global head of rates and debt strategy at ING.

Crude oil was firmer after a forecast that U.S. shale oil output would record its first monthly decline in more than four years, and on tensions in Yemen.

U.S. crude was up 39 cents at $53.68 a barrel, having risen 3.3 percent on Tuesday, while Brent added 50 cents to $58.95 a barrel.