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 EU data - on Tuesday the euro zone Purchasing Managers' Index and
unemployment figures - continued to point to a fragile recovery but
there was relief among the region's banks <.SX7E> as France's
largest, BNP Paribas, settled a U.S. sanctions probe.
Chinese factory PMIs earlier helped reinforce signs of stabilization
in its giant economy, giving a lift to investors digesting a first
half during which few of the main 2014 consensus calls proved to be
right.
Markit's final euro zone manufacturing PMI fell to 51.8 in June from
May's 52.2, its lowest since November. But it has now held above the
50 mark that separates growth from contraction for a full year.
European shares <.FTEU3> were up 0.5 percent by midday, led by BNP <BNPP.PA>
which jumped 4 percent as it settled a $9 billion U.S. sanctions
case, though worries about a number of Portuguese banks hit stocks
there <.PSI20>.
Italian and Spanish bonds made ground as economists wagered the
anaemic euro zone manufacturing figures and jobs data would be
subdued enough to keep the European Central Bank - which meets on
Thursday - thinking about easing policy.
Weak inflation numbers on Monday reinforced the ECB's unprecedented
measures last month and though further policy moves are unlikely
until late in the year, they could still come. [FRX/]
"EMU inflation remains at a very low level and this rather supports
the dovish tone of the ECB in general but not changing their view
for now," DZ Bank strategist Christian Lenk said.
A string of fairly upbeat but minor U.S. economic figures published
on Monday did little to weaken expectations, rekindled after
surprisingly weak first quarter growth data, that the U.S. Fed will
also not be in any rush to raise rates.
San Francisco Fed President John Williams said the central bank will
probably need to keep interest rates near zero for at least another
year.
Having notched up their sixth straight quarter of gains on Monday,
U.S. stocks were expected to follow Europe's upward trend when
trading resumes. Asian shares <.MIAPJ0000PUS> had spent their day
near recent three-year highs. Japan's Nikkei rose 1.3 percent.
AWAITING U.S. JOBS REPORT
As well as the ECB's monthly meeting, Thursday will include a U.S.
employment report, expected to see another strong reading a day
earlier than usual due to July 4 celebrations.
One big market bet for the first half was for a rise in the dollar
on the view the Fed is inching towards its first post-crisis rate
hike, but this predictions has fallen flat.
The dollar index hit a seven-week low of 79.759 on Monday and stood
barely above that at 79.861 in Europe as the start of U.S. trading
approached.
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Ten-year U.S. government bond yields - an important benchmark for
the dollar and global borrowing costs - traded around 2.55 percent.
"I think the big question for the second half of the year is when is
this so-called dollar rally that we have been waiting 12, maybe even
24 months for is going to happen," CMC markets strategist Michael
Hewson said.
In contrast to the struggling dollar, Britain's pound strained for
its highest level in six years on bets of a rate hike this year. The
euro was also firm just off a six-week high at $1.3681, giving ECB
policymakers cause for frustration after their aggressive easing
measures last month.
POLITICAL TENSIONS
Another of the assets continuing to defy gloomy bets at the start of
the year was gold <XAU=> as heightened geopolitical tensions and the
limp dollar kept it near at a 2-1/2-month high.
The first session of Iraq's new parliament - under pressure to name
a government to keep the country from splitting apart - was
adjourned without settling on a new speaker.
Ukraine was also threatening. President Petro Poroshenko said on
Tuesday government forces would renew their offensive against
rebels, hours after a ceasefire expired.
Brent crude dipped to $112.33 a barrel by 1100 GMT, after ending
down 94 cents at its lowest since the rally spurred by the Iraqi
crisis started on June 12. Government forces in Iraq appeared to be
keeping Sunni militants away from major refineries in the country's
south.
U.S. oil rose 35 cents to $105.72 a barrel.
"We certainly need to keep an eye on Iraq and see what is happening
in Ukraine. But overall economic data, including from the United
States, seems to suggest the global economy is improving,"
OptionsXpress markets analyst Ben Le Brun said.
(Additional reporting by Hideyuki Sano in Tokyo; Editing by Louise
Ireland and John Stonestreet)
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