European Factors to Watch-Soft start eyed ahead of PMI data

LONDON Mon Feb 3, 2014 2:22am EST

LONDON Feb 3 (Reuters) - European stocks were seen opening flat to lower on Monday, capped by a sell-off in emerging markets as investors awaited European manufacturing data before deciding whether to buy back into shares after a dire start to the year.

At 0717 GMT, futures for the Euro STOXX 50, Britain's FTSE 100 , Germany's DAX and France's CAC were down between 0.3 percent and 0.5 percent.

Asian shares lost ground on Monday, with Japan's Nikkei hitting lows not seen since mid-November, after more downbeat data from China, where the official Purchasing Managers' Index (PMI) dipped to 50.5 in January from December's 51, in line with market expectations. The Chinese market was shut for the Lunar New Year holiday.

The euro zone Euro STOXX 50 index fell 3.1 percent in January in its first monthly fall since August, as investors worried about the effect of slower growth in China and other emerging markets, reduced U.S. monetary stimulus and, last week, signs of a new slowdown in euro zone inflation.

"Over the weekend the official China Manufacturing PMI (gave) the markets a concrete reason for weakness," Jonathan Sudaria, a dealer at Capital Spreads, said.

"However, it feels as though the fall out from the emerging market rout still hasn't fully run its course so bargain hunters are reluctant to step in front of a possibly south heading freight train."

Technical charts also showed the Euro STOXX 50 has broken below a positive trend line started in June, sending a strongly bearish technical signal.

The index's next target on the downside is 2,916 points, representing the 38.2 percent Fibonacci retracement of the seven-month rally as well as the low that was hit in mid-December.

"Most people are capitulating right now and there's no underlying demand at the moment," Justin Haque, a broker at Hobart Capital Markets, said.

Haque, however, said the sell-off was creating the condition for a small technical rebound in the coming weeks and was waiting for FTSE 100 futures, currently trading at around 6,430 points, to hit 6,400, a bottom formed in December, before buying back in.

"There is a short base now and there hasn't been one for a long time," he said.

Manufacturing PMI data from Europe's largest economies, due to be published shortly after the market open, was set to be scrutinised for clues about the state of the region's recovery, a key driver in the Euro STOXX 50's 18 percent rally in 2013.

Of interest to euro zone exporters to the United States, the euro hovered near a 10-week low against the dollar on Monday after soft euro zone inflation data rekindled speculation the European Central Bank, due to announce its rate decisions on Thursday, may ease policy to stave off deflation.

> GLOBAL MARKETS-Asia stocks slip; euro dogged by ECB talk > US STOCKS-Big chill gives Dow, S&P worst month since May 2012 > Nikkei falls to fresh 2 1/2-month low on ongoing emerging market woes > U.S. bonds rise to clinch best month since mid-2012 > Euro wallows near 10-week low on deflation fears > Gold holds steady amid China absence and stronger dollar > London copper drifts near 2 month low > Brent hits 2-wk low at $106; supply fears, dollar stem losses

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