* Caution in week of manufacturing data, U.S. payrolls
* Euro on defensive as market sees pressure on ECB to ease
* Wall Street set for modest 0.1 pct rebound after falls
* Hungary in firing line of emerging market battle
By Marc Jones
LONDON, Feb 3 Relentless worries about emerging markets left world stocks struggling near 3-1/2 month lows, weighed on the dollar and sent Russia's rouble and Hungary's forint to long-term lows on Monday.
Wall Street was expected to manage a steadier start after Friday's turbulent finish, but constant tensions in developing markets have crushed last year's risk appetite.
Europe's main share markets were starting to shake off their morning gloom as the U.S. restart approached but the focus on strained economies remained intense.
Hungary's forint dropped to a 10-month trough against the dollar as a 1.5 percent drop in its main stock market and a rise in sovereign default insurance costs added to the gloom.
Data showing Russian manufacturing shrinking for the third month in a row drove the rouble towards a five-year low.
"It is a global macro question and global risk sentiment is really at stake here," said John Hardy, head of FX strategy at Saxo bank in Copenhagen. "There are a lot of event risks this week and it just feels like markets are trying to figure out where they are."
Investors will be hoping this month is not a repeat of January, when MSCI's global index posted its largest monthly decline since May 2012 led by a 6.6 percent slump in emerging markets.
The week ahead provides a raft of global business surveys and jobs data from the United States to offer a clearer view on the global economy, while the European Central Bank (ECB) might well consider easing policy at its meeting on Thursday.
The prospect of an ECB move pinned the euro near 10-week lows at $1.3490 following a break of major support at $1.3506 in Asia.
The pressure on the shared currency had been eased slightly by data showing euro zone factories enjoyed their strongest month since mid-2011 in January and the first growth in Greek manufacturing activity since August 2009.
But it was back on the defensive by early afternoon as focus returned to last week's sinking inflation rate.
"It feels like the euro it is breaking here," Hardy added. "If the ECB doesn't reverse that break I am looking towards $1.32 for an intermediate area and then $1.30."
BAHT BOUNCES, FORINT VULNERABLE
Emerging markets will also be high on the 24-member ECB Governing Council's agenda. The stampede out of developing markets could force the euro higher and inflation lower again.
The Thai baht bounced on Monday after peaceful elections over the weekend triggered short-covering, but the South Korean won had its weakest day in 7-1/2 months, leading losses among Asian currencies on stress in emerging markets.
Not helping was data from China where the official Purchasing Managers' Index (PMI) dipped in January in line with market expectations, as a separate survey of the service sector also showed a moderation in growth.
Investors poured their cash into developing economies when emergency rate cuts during the financial crisis meant U.S., European and other developed market bonds offered little in the way of interest. They are now pulling it back out again as the prospects of higher developed market rates re-emerge.
Turkey's lira TRY=, another flashpoint, found relative calm after a drastic official interest rate rise last week.
But many see Hungary, with its high debt levels and unorthodox economic policies, as most vulnerable in the region to the reversal in sentiment.
It has vowed to keep cutting interest rates despite the recent FX market turbulence but UniCredit strategist, Saroliya Gaurav, said the jump in Hungary's government market borrowing costs in recent days highlighted the scrutiny it was now under.
"That is essentially telling me that markets are going to take on the central bank and try to force them into a rate hike, as indeed happened in the case of the South African Reserve Bank."
FLIGHT TO SAFETY
Japan's Nikkei again led Asian share losses as a fresh 2 percent drop took it to lows not seen since November.
U.S. stock futures, however, pointed to a modest 0.1 percent rebound ahead of housing and manufacturing data. Saxo's Hardy added the benchmark S&P 500 was now teetering just above a "critically sensitive" resistance of 1,770 points.
Among assets traditionally perceived as relatively safe, the yen rose as high as 101.87 yen while the yield on the benchmark 10-year U.S. Treasury note hovered near lows not seen since mid-November at 2.6748 percent.
Gold edged up to $1,244.19 an ounce though it remained down on where it was a week ago. Brent oil dipped back below $106, while China's lacklustre data left growth-attuned copper slumped at a 2-month low.
"Brent is suffering from the emerging market turmoil that is spreading across most markets," said Tetsu Emori, a commodity fund manager at Astmax Investment.