GLOBAL MARKETS-Upbeat factory data buoys European shares, euro

Tue Aug 6, 2013 8:27am EDT

* Germany, UK factory data extends upbeat data trend

* European shares reverse early losses to gain 0.2 pct

* Euro and sterling supported by brighter outlook

* Australian dollar bounces as no further rate cuts signalled

By Richard Hubbard

LONDON, Aug 6 (Reuters) - European shares and the euro strengthened on Tuesday on news of a surge in factory output in Britain and Germany, while Australia cut interest rates to ease the strains on its economy.

Wall Street, however, was set for a mixed start with the main share indexes hovering below record highs as investor await clues to whether the Federal Reserve will start to scale back its stimulus soon.

The strong growth at factories in Europe's largest economy, and in Britain, the euro zone's biggest trade partner, in June extended a run of recent upbeat data which points to an early end to the currency bloc's 18-month recession.

Though analysts were quick to stress the region was far from seeing the kind of recovery underway in the United States.

"We think that austerity as well as a financial system that is not willing to lend money to companies will still suppress growth for a longer time," Ronald Doeswijk, chief strategist at fund managers Robecco.

The data put Europe's broad FTSEurofirst 300 index on course for a seventh straight day of gains as it rose 0.2 percent , although the UK's FTSE 100 index ended the morning session slightly easier, down 0.1 percent.

In the currency markets both the British pound and the euro reversed early weakness to gain on the dollar after the data with sterling settling little changed at $1.5350 and the single currency edging up 0.15 percent to $1.3280.

Germany said industrial orders at its factories surged by a surprisingly strong 3.8 percent in June, their largest monthly rise since October as contracts for big-ticket items jumped and euro zone demand rebounded.

Britain's manufacturers reported their biggest annual rise in overall industrial production for over two years, adding to growth already seen in service sector activity, the housing market and in retail sales.

"The broad-based improvement seems to suggest that the current improvement in activity has good foundations and further progress is likely in the coming months," Annalisa Piazza, a senior economist at Newedge Strategy, said.

Italy's economy shrank by less than expected in the second quarter, adding to recent signs its slowdown is bottoming out.

German government bond prices eased after the data, sending 10-year Bund yields to 1.7 percent while equivalent Italian bond yields fell 4.5 basis points to 4.25 percent.

The better tone in European equities bucked an earlier trend in Asia where MSCI's Asia-Pacific ex-Japan index fell 0.5 percent to hit a two-week low and post the first loss in four days.

However, stocks in Tokyo had ended up 1 percent after Reuters reported that a massive Japanese pension fund for government workers was considering increasing its allocation mix to buy more stocks.

AUSTRALIA CUTS

The main focus of the Asian session was the Reserve Bank of Australia's decision to cut interest rates by 25 basis points to a record low 2.5 percent, and refrain from any guidance on further policy moves.

The move had been widely expected and some traders were disappointed by the absence of any statement on more rate cuts, leaving the local dollar up some 0.6 percent against the greenback at $0.8982.

"The bounce in the Aussie is unlikely to last," said Neil Mellor, currency strategist at Bank of New York Mellon. "The RBA has said it expects a further decline in the currency."

In commodity markets, copper added 1.1 percent to around $7,056 a tonne, helped by a weaker dollar, while encouraging economic data from both sides of the Atlantic in the past two days helped push gold down 1.2 percent. It extended a 0.6 percent drop in the previous session and was not far from a two-week low of $1,282.69 hit on Friday.

Brent crude prices recovered to trade above $109 a barrel on rising Middle East tension after the United States told U.S. citizens to leave Yemen immediately. It was on course to snap two days of losses.

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