GLOBAL MARKETS-Banks boost Europe as shares start second half brightly

Tue Jul 1, 2014 7:30am EDT

* French banks help European stocks start H2 robustly
    * China PMI points to stabilising economy
    * Euro zone PMI subdued, supports need for ECB help
    * Dollar barely above 7-week low on forecasts of dovish Fed
    * Wall Street seen up 0.3 percent after 6th quarter of gains

    By Marc Jones
    LONDON, July 1 (Reuters) - European and Asian stocks started
the second half of 2014 brightly on Tuesday, helped by upbeat
Chinese data and bets that record low interest rates will remain
in place for some time yet.
    EU data - on Tuesday the euro zone Purchasing Managers'
Index and unemployment figures - continued to point to a fragile
recovery but there was relief among the region's banks 
as France's largest, BNP Paribas, settled a U.S. sanctions
probe.
    Chinese factory PMIs earlier helped reinforce signs of
stabilisation in its giant economy, giving a lift to investors
digesting a first half during which few of the main 2014
consensus calls proved to be right. 
  
    Markit's final euro zone manufacturing PMI fell to 51.8 in
June from May's 52.2, its lowest since November. But it has now
held above the 50 mark that separates growth from contraction
for a full year.
    European shares were up 0.5 percent by midday, led
by BNP which jumped 4 percent as it settled a $9
billion U.S. sanctions case, though worries about a number of
Portuguese banks hit stocks there. 
    Italian and Spanish bonds made ground as economists wagered
the anaemic euro zone manufacturing figures and jobs data would
be subdued enough to keep the European Central Bank - which
meets on Thursday - thinking about easing policy. 
    Weak inflation numbers on Monday reinforced the ECB's
unprecedented measures last month and though further policy
moves are unlikely until late in the year, they could still
come. 
    "EMU inflation remains at a very low level and this rather
supports the dovish tone of the ECB in general but not changing
their view for now," DZ Bank strategist Christian Lenk said.    
    A string of fairly upbeat but minor U.S. economic figures
published on Monday did little to weaken expectations, rekindled
after surprisingly weak first quarter growth data, that the U.S.
Fed will also not be in any rush to raise rates.
    San Francisco Fed President John Williams said the central
bank will probably need to keep interest rates near zero for at
least another year. 
    Having notched up their sixth straight quarter of gains on
Monday, U.S. stocks were expected to follow Europe's upward
trend when trading resumes. Asian shares had
spent their day near recent three-year highs. Japan's Nikkei
 rose 1.3 percent. 
    
    AWAITING U.S. JOBS REPORT    
    As well as the ECB's monthly meeting, Thursday will include
a U.S. employment report, expected to see another strong reading
a day earlier than usual due to July 4 celebrations.
    One big market bet for the first half was for a rise in the
dollar on the view the Fed is inching towards its first
post-crisis rate hike, but this predictions has fallen flat.
    The dollar index hit a seven-week low of 79.759 on Monday
and stood barely above that at 79.861 in Europe as the start of
U.S. trading approached.
    Ten-year U.S. government bond yields - an important
benchmark for the dollar and global borrowing costs - traded
around 2.55 percent.
    "I think the big question for the second half of the year is
when is this so-called dollar rally that we have been waiting
12, maybe even 24 months for is going to happen," CMC markets
strategist Michael Hewson said.
    In contrast to the struggling dollar, Britain's pound
strained for its highest level in six years on bets of a rate
hike this year. The euro was also firm just off a six-week high
at $1.3681, giving ECB policymakers cause for frustration
after their aggressive easing measures last month.
  
     
    POLITICAL TENSIONS
    Another of the assets continuing to defy gloomy bets at the
start of the year was gold as heightened geopolitical
tensions and the limp dollar kept it near at a 2-1/2-month high.
    The first session of Iraq's new parliament - under pressure
to name a government to keep the country from splitting apart -
was adjourned without settling on a new speaker. 
    Ukraine was also threatening. President Petro Poroshenko
said on Tuesday government forces would renew their offensive
against rebels, hours after a ceasefire expired. 
    Brent crude dipped to $112.33 a barrel by 1100 GMT,
after ending down 94 cents at its lowest since the rally spurred
by the Iraqi crisis started on June 12. Government forces in
Iraq appeared to be keeping Sunni militants away from major
refineries in the country's south.
    U.S. oil rose 35 cents to $105.72 a barrel.
    "We certainly need to keep an eye on Iraq and see what is
happening in Ukraine. But overall economic data, including from
the United States, seems to suggest the global economy is
improving," OptionsXpress markets analyst Ben Le Brun said.

 (Additional reporting by Hideyuki Sano in Tokyo; Editing by
Louise Ireland and John Stonestreet)
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