European shares lifted by central bank hopes

LONDON (Reuters) - European shares crept higher on Monday after weak factory data highlighted the poor health of the global economy, keeping alive talk of fresh stimulus from major central banks.

However, with U.S. investors out for the Labor Day holiday, markets were trading in a limited range.

Expectations that central banks would soon take steps to boost growth increased after separate surveys showed manufacturing activity in China and Europe slowing by more than expected in August.

"I think we're going to see more stimulus from pretty much every central bank on the face of the planet," said Michael Ingram, market analyst at BGC Partners.

"You know we're living in a globalised economy. It's a globalised slowdown so policy makers have to step up to the plate."

The hopes helped lift the FTSEurofirst 300 index <.fteu3> of top European shares 0.5 percent by midday on Monday to 1,088.65 points, adding to gains of 0.5 percent on Friday.

The MSCI world equity index <.miwd00000pus> was barely changed at 322.40 points, but it ended seven straight down days on Friday when investors interpreted the Fed chief's latest comments as a sign further stimulus measures were likely.

The single currency meanwhile stood at $1.2570, just below an eight-week peak of $1.2638 set on Friday when it also gained after Bernanke's speech at Jackson Hole in Wyoming.

EYES ON ECB

Any move from the Fed is unlikely before its next policy meeting, which runs from September 12-13, and will be heavily dependent on the outcome of Friday's August payrolls report which could add to signs of a gradual U.S. recovery.

In the meantime the market's main focus is on the European Central Bank meeting this Thursday, where expectations are rising that it may cut its main interest rates, already at record lows.

The likelihood of a rate cut grew on Monday after the final Purchasing Managers' Index (PMI) reading for the factory sector in August showed activity across the region contracting at an accelerating rate.

The euro area index fell from an initial estimate of 45.3 to 45.1, notching its 13th month below the 50 mark separating growth from contraction.

The data confirmed that a downturn which began in the smaller peripheral members of the 17-nation bloc has now spread to the core nations of Germany and France and that the region's third and fourth biggest economies of Italy and Spain are still getting weaker.

"Larger nations like France and Germany remain in reverse gear... the (manufacturing) sector is on course to act as a drag on gross domestic product in the third quarter," said Rob Dobson, senior economist at data collator Markit.

The ECB will release its latest economic projections for the euro area at Thursday's meeting, the same day Europe's statistics agency Eurostat is likely to announce the region's economy contracted by 0.2 percent in the second quarter.

Markets are also expecting the ECB to release details of its new bond-buying plan to ease the region's debt crisis, which many central banks say is the prime cause of the global slowdown in economic activity.

The prospect of ECB bond buying helped 10-year Spanish bond yields to fall 5.4 basis points on Monday to 6.86 percent, while two-year yields shed 18 basis points to 3.56 percent.

COMMODITY STIMULUS

In oil markets the latest surveys on factory activity, in particular the unexpected weakness in China, the world's No.2 oil consumer, saw prices ease.

Brent October futures were down 7 cents at $114.50 per barrel, steadying after jumping nearly $2 on Friday. U.S. crude futures eased 15 cents to $96.32.

"The Chinese data is very gloomy and suggests that the world economy is slowing," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt. "But the market impact is rather limited as it raises hopes of more economic stimulus measures."

Gold held around five-month highs of $1,686.96 an ounce as any sign of more monetary easing from the world's major central banks makes the precious metal more appealing to investors as a hedge against potential inflation.

Speculation the Fed may be about to act lifted the gold price by 4.8 percent in August, marking its third successive monthly gain and the largest one-month increase since January.

Gold has now doubled in price since the Fed first employed quantitative easing, the practice of buying government debt on the secondary markets to keep rates low and liquidity high, in late 2008.

(Additional reporting by Jonathan Cable and Christopher Johnson; Editing by Anna Willard)

Source: http://news.yahoo.com/asian-shares-inch-lower-bernanke-data-focus-001749024--finance.html

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