GLOBAL MARKETS-Europe lifted by PMI data, China's wobble hits Asia

Mon Dec 16, 2013 8:13am EST

* German data help European shares bounce off 2-month lows

* Wall Street expected to open up 0.5 percent

* Investors still no clearer on whether Fed will taper this week

* Mild disappointment as China manufacturing index dips

* Oil climbs as Libyan ports stay shut

By Marc Jones

LONDON, Dec 16 (Reuters) - Robust German PMIs helped Europe shrug off some mixed Asian data on Monday, although caution remained just days away from the next decision on U.S. monetary stimulus.

Wall Street looked set to start strong, before a packed few days of economic data and monetary policy meetings. Both the S&P 500 and Dow Jones Industrial Average were expected to open 0.5 percent higher.

European stocks started their week in better form than they ended the last. An upturn among Germany's export-oriented manufacturers offset an unexpected slowdown in France to help the euro zone end the year on a high.

"It's really encouraging to see the increase in the overall rate of growth," said Chris Williamson, the chief economist at Markit, which compiles the widely-watched purchasing managers index (PMI) surveys. "It's a reassuring signal that the recovery is still on track. We are not losing momentum."

Britain's FTSE 100, Germany's DAX and France's CAC 40 all overcame early wobbles to climb 0.5, 0.8 and 1.3 percent respectively as they rebounded from last week's two-month lows.

Encouraging as the PMI data might have been, they amounted to little more than a short-term diversion with so much going on this week, said Jan von Gerich, the chief developed markets strategist at Nordea.

U.S. PMIs are due later and the Federal Reserve meets on Tuesday and Wednesday to discuss tapering its $85 billion of monthly bond buying. Opinion remains divided on whether it will move this week or wait until January - or even March.

"Tomorrow we get inflation data from the U.S., which will probably shape the final expectations going into the meeting, because that has been one of the things that has been holding the Fed back," von Gerich said.

"Some of the recent data has suggested the weakest inflation is behind us, but it has not all been that way ... so (considering tapering expectations) a downside surprise will have a bigger impact than a upside surprise."

CAUTIOUS MOOD

The euro headed back towards Friday's two-month high after the euro zone data, as safe-haven German government bonds lost out in favour of higher-yielding Spanish and Italian debt.

The upbeat German mood was anchored by a breakthrough in Berlin over the weekend that ended months of wrangling over the next government, as well as evidence that the euro zone was edging over the line in its long-awaited banking union deal.

As U.S. trading began to gather pace, the euro was fetching $1.3782 versus Friday's $1.3811. It had been gaining ground all day, although BNP Paribas analysts said its failure to hold above $1.3800 suggested there was scope for a retreat back to $1.3695.

The otherwise cautious mood in markets was encapsulated by MSCI's broadest index of Asia-Pacific shares outside Japan, which ended down 0.4 percent lower.

In Shanghai, stocks fell 1.6 percent after a measure of growth in Chinese manufacturing slowed to a three-month low in December. Reduced output offset a pickup in new orders. Japan's Nikkei also lost 1.6 percent despite a generally upbeat survey of Japanese.

Confidence among big manufacturers improved to its highest level in six years, the survey from the Bank of Japan showed, boding well for Prime Minister Shinzo Abe's stimulus policies aimed at ending 15 years of grinding deflation.

"Conditions had definitely improved, especially if you look at small firms," said Masamichi Adachi, a senior economist at JPMorgan in Tokyo.

OIL EDGES UP

Part of the pick-up in Japan comes via the yen, which hit a five-year low against both the dollar and euro last week. On Monday, it regained a little ground as dealers trimmed short positions before the Fed meeting. The dollar bought 103.02 yen , having briefly hit a peak just shy of 104.00 on Friday.

The euro stood at 142.07 yen, against a top of 142.82. The dollar index was 0.3 percent lower at 79.957 as the Fed uncertainty limited its immediate appeal.

A first cutback in the Fed's long-running stimulus programme could amount to a vote of confidence in the economy. The risk is that outgoing Chairman Ben Bernanke's message will set off a turbulent market selloff.

In commodity markets, spot gold was a shade lower at $1,232 an ounce, after gaining 1.2 percent on Friday.

Brent futures rose towards $111 a barrel on Monday. Supply concerns revived after Libya failed to reach a deal with tribal leaders to end the blockade of several oil-exporting ports.

Brent crude for January was almost $2 higher at $110.74, after falling as far as $108.02 in the previous session. U.S. crude oil for January delivery rose 65 cents to $97.26 per barrel.

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