GLOBAL MARKETS-Sterling jumps to near five-year high, euro climbs

Thu May 1, 2014 8:29am EDT

* Sterling jumps after surging UK manufacturing figures
    * China PMI a tick under forecasts at 50.4, offers little
clarity
    * Nikkei bounces as Wall St proves resilient to poor US GDP
    * Fed keeps upbeat outlook, investors give it benefit of
doubt

    By Marc Jones
    LONDON, May 1 (Reuters) - Surging manufacturing growth in
Britain drove sterling to a near five-year high on Thursday as
markets suffered only a brief wobble after data on China's vast
manufacturing sector just missed forecasts.
    May Day holidays in Europe and much of Asia meant trading
was thin, and muted the market impact of the Chinese figures,
which followed disappointing U.S. growth a day before. 
    China's official manufacturing PMI came in at 50.4 in April,
up a tick from March but below forecasts of 50.5, an outcome
that failed to ease concerns about the economy but did not point
to a deepening slowdown.
    A forecast-busting British manufacturing PMI underscored the
strength of the economy, which is outperforming major European
peers and catapulted sterling to its highest in nearly
five years against the dollar. London's FTSE climbed 0.3
percent aided by upbeat results from BSkyB and Lloyds bank. 
    The pound also rose towards a two-month high against the
euro, all of which helped underpin the sterling trade-weighted
index near a 5-1/2 year high struck earlier this week. 
    "What more can you say about the UK. We have really had a
stellar PMI report, the headline number was much higher than
expected and the underlying components were all strong," said
Vasileios Gkionakis, global head of FX strategy at UniCredit.   
    "We still see the first (Bank of England) rate hike in the
final quarter of this year and we see a repricing of interest
rate (rise) expectations sooner rather than later."
    The euro also muscled higher, though it did not hold
onto all its gains after hitting a three-week high of $1.3889 on
expectations that April's uptick in euro zone inflation will
stop the European Central Bank loosening policy soon. 
    But the ECB may not welcome the market's renewed affection
for the shared currency as it frets about low inflation ahead of
its monthly meeting next week. 
    The combination of market holidays and the start of a new
month meant Europe's money market rates, which underpin
the cost of loans to consumers and firms but also impact the
euro, remained high despite a flood of extra cash this week.
    "It will come down tomorrow," said one London-based money
market trader, "Though the two day-run (of holidays) mean it
probably won't be as straightforward as usual."

    DELICATE CHINA    
    The dollar got back to its feet after Wednesday data showed
bad winter weather dragged on U.S. growth in the first quarter,
while upbeat earnings news helped Japanese stocks stage their
biggest rally in two weeks. The Nikkei closed 1.3
percent higher. 
    There was also better news from South Korea, where exports
grew at the fastest annual pace in over a year. 
    The Australian dollar, often a bellwether for market
thinking on China, to which the country is a major exporter of
resources, swung repeatedly after Beijing released its PMI
before eventually settling at around $0.9273.
   
        
    FED STAYS HOPEFUL
    Futures prices pointed to fractionally higher starts for all
major U.S. indexes   when trading resumes,
after the Dow's first record high of the year on Wednesday.
    The U.S. economy grew just 0.1 percent annualised in the
first quarter, far below already weak forecasts of 1.2 percent,
but investors have been willing to give it the benefit of the
doubt in expectations of a rebound this quarter. 
    Economists will have manufacturing PMI and inflation data
 to digest later on Thursday, while jobless claims
figures - the traditional appetiser for Friday's big payrolls
report - are expected to drop to around 319,000. April non-farm
payrolls are forecast to show an increase in jobs of 210,000.
  
    The Federal Reserve ended its policy meeting on Wednesday
with a relatively upbeat statement as it pared back bond buying
by another $10 billion. 
    Fed chief Janet Yellen speaks later in Washington. Markets
will watch for any steer on how the U.S. central bank plans to
manage the transition to post-crisis policy and eventually
higher interest rates.
    In commodity markets, oil stayed under pressure after stocks
of the fuel in the United States hit a record high.
    Brent crude for June delivery was 0.7 percent lower
at $107.34 having shed over a dollar overnight, while June U.S.
crude eased a further to $99.16. Spot gold 
also fared poorly to stand at $1,28.68 an ounce.

 (Additional reporting by Wayne Cole in Sydney; Editing by
Catherine Evans)
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