* European shares recover losses ahead of Fed speech
* Euro jumps to 8-week high $1.2595
* World shares set for weekly loss on slowing global growth
* Brent crude oil at $113 a barrel for a second monthly gain
By Richard Hubbard
LONDON, Aug 31 European shares and the single
currency rose on Friday as signs emerged of progress toward a
deal to tackle Europe's debt crisis, and as investors positioned
for a key speech from U.S. Federal Reserve Chairman Ben Bernanke
later in the day.
U.S. stock index futures pointed toward solid gains on Wall
Street ahead of Bernanke's address to the annual Jackson Hole
meeting of central bankers, due at 1400 GMT, which is being
closely watched for hints on further monetary policy easing.
A steady stream of surprisingly good economic data on the
giant U.S. economy over the past week in areas such as consumer
spending, housing, inflation and employment had raised questions
over whether more stimulus is warranted.
But as riskier assets fell on fading hopes of action, more
buyers have emerged as investors began to reassess the prospects
that Bernanke might signal an easing.
"Expectations have been pared back from one week ago and the
risk/reward is shifting back towards a potential positive
surprise," said Audrey Childe-Freeman, head of foreign exchange
strategy at BMO Capital Markets.
The euro recovered from a weak start to hit an eight-week
high of $1.2595 against the dollar on Friday ahead of the
speech, which could push the U.S. currency lower if Bernanke
signals more monetary easing may be imminent.
Meanwhile, European stocks extended their gains around
midday on Friday, reversing earlier losses in thin markets,
after comments from an ECB official rekindled expectations of
bold action from the central bank to fight the debt crisis.
The FTSEurofirst 300 index of top European shares
was up 0.8 percent at 1,086.58 points, while the euro zone's
blue chip Euro STOXX 50 index index was up 1.4
percent at 2,438.24 points.
The gains came when ECB Executive Board member Benoit Coeure
said the bank would do everything in its mandate to preserve
the euro - a line similar to President Mario Draghi's comment
in late July, which spurred a big rally in riskier assets.
The ECB was studying ways of intervening in the short-term
bond market based on strict conditionality and the countries
concerned agreeing to aid programmes with the euro zone bailout
funds, Coeure said.
German ECB policymaker Joerg Asmussen also indicated late on
Thursday that he was less opposed to the bond buying plan but
said the ECB should only buy sovereign bonds if the
International Monetary Fund was involved in setting the economic
reform programmes that should be demanded in
MSCI's world equity index joined in the
gains, rising 0.3 percent to 321.38 points, though it has shed
about 1 percent this week on signs global economic activity is
gradually slowing, even as the fragile U.S. recovery gathered
Final details of the plan, which still faces stiff
opposition from the German Bundesbank, are only expected to
emerge at an ECB policy meeting on Sept. 6.
However, as hopes of decisive action rose on Friday, German
debt prices eased, sending 10-year Bund yields up
7 basis points to 1.39 percent.
Spanish 10-year government bond yields also
rose 11 basis points to 6.73 percent, while equivalent Italian
yields were unchanged at 5.78 percent.
In commodity markets Brent crude was trading above $113 a
barrel and heading for its second monthly gain, supported by the
renewed hopes of more monetary easing from the Fed that could
spur economic growth and support oil demand.
There is also some concern about oil supplies as tension is
rising again over Iran's nuclear programme.
A U.N. report said on Thursday that Iran had doubled the
number of uranium enrichment centrifuges it has in an
underground bunker, despite Western pressure and the threat of
an Israeli attack.
Brent crude was up 57 cents at $113.22 a barrel,
while U.S. crude added 38 cents to $95.00.
Gold was a little firmer on Friday, holding near a 4-1/2
month high hit earlier this week at $1,655.40 an ounce.
Bullion, which is on track for its third straight month of
gains, is seen as a hedge against inflation and would be
expected to rise if Bernanke does hint at a resumption of cash
printing to boost growth.
"If Bernanke disappoints, then we could see a slight
sell-off, but I am not looking at gold to fall violently," said
Phillip Futures analyst Lynette Tan.
Spot gold was up 0.2 percent at $1,659.26 an ounce at
1137 GMT, while U.S. gold futures for December delivery
were up $5.00 an ounce at $1,662.10.