GLOBAL MARKETS-Syria worries check gains from better economic outlook

Wed Sep 4, 2013 8:37am EDT

* Tapering talk keeps dollar near 6-week high

* Europe shares pegged back by Syria concerns

* Wall Street set for soft open; MSCI global index flat

* Brent crude holds above $115 a barrel, gold eases

By Richard Hubbard

LONDON, Sept 4 (Reuters) - The risk of military action on Syria and imminent central bank policy decisions kept the dollar near a six-week high on Wednesday and checked any gains in shares and oil from upbeat data on the global economy.

The uncertainty about the impact of any action on Syria put pressure on U.S. stock indexes as well, signalling a softer start to trading when Wall Street opened.

Military strikes on Syria moved a step closer on Wednesday after Russian President Vladimir Putin signalled a readiness to drop his opposition if Damascus were proven to have carried out a chemical weapons attack.

Putin's comments come after U.S. President Barack Obama clinched the backing of key figures in Congress for his plan to punish the Syrian government with limited strikes, though no vote on that proposal is due until next week.

Investors also faced a busy period of potentially market moving events in the next few days, including a G20 summit in St Petersburg, policy decisions on Thursday from the Bank of England, Bank of Japan and European Central Bank, and the U.S. jobs report on Friday.

Together, it all put a lid on activity.

"There's a whole host of stuff that has the potential to undermine risk appetite," said Michael Hewson, senior market analyst at CMC Markets. "If you're a little bit concerned about the outlook, you're not going to take long-term investment decisions."

Given the risks, the dollar dipped slightly against a basket of major currencies at 82.30, but stayed near its strongest level since July 22, supported by Tuesday's data showing U.S. factory output growing surprisingly strongly.

The numbers were seen as increasing the likelihood that the Fed will begin cutting its current economic stimulus at its policy meeting on Sept. 17-18, buoying U.S. bond yields which add to the attraction of the dollar.

"U.S. economic data has helped the dollar. What is important is the U.S. labour market report which is a strong hint for the future course of Fed monetary policy and when they will start tapering," said Ulrich Leuchtmann, head of FX research at Commerzbank.

The two-year U.S. Treasury note yield was at 0.43 percent, not far from the 0.442 percent hit on June 26, its highest since July 2011.

On equity markets MSCI's world share index, which tracks moves in 45 countries, was little changed as the Syrian concerns offset the brighter U.S. outlook.

Oil prices actually eased 0.4 percent despite all the talk about a Syrian strike, though Brent crude down 50 cents at barrel at $115.17 was still well above levels of near $111 a barrel seen before the gas attacks came to light.

Some safe-have buying also allowed gold to hold above $1,400 an ounce though the price had slipped by 0.6 percent from the peaks hit on Tuesday when a missile test by Israeli forces training with the U.S. Navy set nerves on edge.

GLOBAL PICKUP

Riskier assets worldwide were drawing some support from a run of surprisingly strong manufacturing activity data from the United States, China, the UK and across Europe this week.

On Wednesday new data revealed the pickup spreading to the service sector with activity in China hitting its highest level for five months in August.

Euro zone businesses also recorded their best month in over two years in August as orders increased for the first time since mid-2011, a separate survey showed, suggesting the region's economy will grow slightly this quarter.

"The euro zone recovery is looking increasingly broad-based, with more sectors and more countries emerging from recession," said Chris Williamson, chief economist at data collator Markit.

However, the strong data proved no match in the European equity markets for a profit warning from the region's biggest budget airline, Ryanair, which highlighted concerns about the outlook for the whole transport sector if tension in the Middle East were to cause a spike in oil prices.

Europe's broad FTSE Eurofirst 300 index was down 0.5 percent for a second day of losses, though it has risen 15 percent since early June on expectations that a broad recovery is taking hold across the recession-hit region.

Within Europe, Italy was the hardest hit, with the FTSE MIB down nearly two percent at one-week lows after some Italian papers said former prime minister Silvio Berlusconi, who faces possible eviction from the Senate over a tax fraud conviction, was considering pulling the plug on the coalition government.

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