GLOBAL MARKETS-Euro steadies at 11-month low as dollar reigns

Thu Aug 21, 2014 7:30am EDT

* European shares, euro lifted by robust German data
    * Dollar, Treasury yields climb on risk of earlier Fed hike
    * Wall Street expected to open up 0.2 pct
    * China manufacturing index well under forecasts at 50.3
    * US oil prices lowest since January amid plentiful supply

    By Marc Jones
    LONDON, Aug 21 (Reuters) - Some reassuring data from Germany
eased pressure on the euro on Thursday after speculation of an
earlier rate rise from the Federal Reserve had pushed the dollar
to an 11-month high.
    Share markets also got a lift from the PMI report, which
showed the German private sector grew for a 16th month running
in August. Stocks had started the day looking flat after a
disappointing survey on Chinese manufacturing overnight.
 
    The German data suggested Europe's largest economy could
rebound in the third quarter after its surprise contraction in
the second. The optimism was tempered by further signs of
stagnation in neighbour France.     
    Europe's pan-regional FTSEurofirst 300 share index 
gained 0.45 percent, the euro hit its high for the day and bond
yields in the region rose as the data dovetailed with firming
expectations the U.S. would raise rates in the next year.
    "Even though the direction (of German PMI data) was lower,
the picture is still one of moderate recovery," said ABN Amro
economist Nick Kounis.
    "The market was positioned for something a bit weaker. We
had the fall in Q2 GDP, the sharp drop in the ZEW survey and
bond markets are starting to price in QE (ECB stimulus) and
deflation, so that tells a story."
    A subsequent composite of PMI data from across the euro zone
showed private business growth slowed more than expected this
month, despite widespread price cutting. Markets focussed on the
positive news from Germany, though. 
    The euro rose as high as $1.3277, having slid to an 11
1/2-month low of $1.3243 overnight after investors detected a
hawkish turn in policy discussions at the Federal Reserve.
 
    Yields on short-term U.S. debt had leapt by the most since
March. Fed policymakers had noted both faster economic growth
and a decline in unemployment, minutes from their last meeting
showed, though they remained wary about labour market slack.
    The U.S. dollar index, which measures the greenback against
a basket of six major currencies, steadied in Europe at 82.250, 
 after breaking higher to 82.332 overnight. The dollar
also climbed to a four-month peak against the yen. 
    "Our takeaway is that the median FOMC participant has been
surprised by how quickly the unemployment rate has come down and
is also less convinced there is as much slack in the labour
market as previously believed," said Michelle Girard, chief
economist at RBS.
    "So the hawks are getting restless and the centrists seem to
be less dug-in on some of their previously held views."
        
    DELICATE CHINA 
    Futures markets pointed to a 0.2 percent gain for
Wall Street when trading starts.    
    Asia markets stalled after the HSBC/Markit Flash China
Manufacturing Purchasing Managers' Index (PMI) fell to 50.3 in
August from July's 18-month high of 51.7, missing a Reuters
forecast of 51.5.
    Investors sold the Australian dollar, often used as
a liquid proxy for bets on China. The CSI300 index of
the leading Shanghai and Shenzhen A-share listings shed 0.9
percent.
    "The sharp drop in the PMI is perhaps not surprising given
last month's disappointing activity and lending data. That said,
we are not expecting a rapid deterioration in economic
momentum," Julian Evans-Pritchard, China economist at Capital
Economics, wrote in a note.    
    Japanese stocks managed to buck the trend, rising
0.9 percent, aided by the weaker yen and a survey showing
manufacturing activity accelerated in August as export and
domestic demand increased. 
    The Markit/JMMA flash Japan PMI jumped to a seasonally
adjusted 52.4, up from 50.5 in July and the highest reading
since March, just before a tax increase hit demand.
    
    
    WHEN DOVES CRY?
    With the cries of the Fed hawks ringing in their ears,
investors are turning their attention to the annual gathering of
central bankers at Jackson Hole in the United States, which
begins later on Thursday. 
    It will be dominated by rate hike and labour market
discussions. Fed chief Janet Yellen speaks on Friday, but a
flurry of U.S. data is due on Thursday as well, including weekly
unemployment claims, homes sales and surveys from the
Philadelphia Fed. 
    In commodity markets, the rise in the dollar knocked gold
down to $1,282.33 an ounce, and further away from last
week's peak of $1,319.10.
    Oil also ran into renewed selling after a modest bounce on
Wednesday. Brent crude for delivery in October was 80
cents lower at $101.43 a barrel and U.S. crude lost 60
cents to $92.80, having touched its lowest since January.
    The world's top two crude oil benchmarks have fallen by more
than $10 a barrel since June on a build-up of supply in the
Atlantic Basin and diminishing worries that conflicts in the
Middle East would cut into oil production. 
    "Fighting in Iraq has had only a very limited impact on
producing and transporting facilities. At the same time, lagging
European demand and the seasonal lull in Asia continue to weigh
on sentiment," said Andrey Kryuchenkov, oil strategist at
Russian bank VTB Capital in London.

 (Aditional reporting by Christopher Johnson in London and Wayne
Cole in Sydney; Editing by Toby Chopra, Larry King)