* Dollar drops to 6-1/2 month low as data fails to budge Fed
* Gold firm on safe-haven bid, wheat at 13-month high on
Ukraine, Russia tension
* China yuan firms, talk of central bank intervention helps
* Shares drift
By Marc Jones
LONDON, May 6 The dollar fell to a 6 1/2-month
low on Tuesday as investors looked past signs the U.S. economy
is emerging from a winter-induced slowdown and focused on the
improving picture in Europe.
The greenback was hurt by U.S. bond yields struggling to
pull out of their recent troughs, suggesting few were betting on
future Federal Reserve interest rates hikes. The dollar index
, which measures it against six other major currencies,
slid as the British pound and euro both gained.
The European Central Bank is expected to repeat its concern
about the strong euro's impact on already-low inflation when it
meets on Thursday. But economists doubt the ECB will cut its
record-low interest rates again.
The euro climbed to $1.3926 in European trading,
popping out of a $1.3864-$1.3887 range, and rose to 141.99
versus the yen. The greenback steadied at 102.02
against the Japanese currency.
"It's an anti-dollar trade," said Gavin Friend, a currency
strategist at National Australia Bank in London. "It didn't go
higher on the data (on Monday), so it's got to go down."
European share markets drifted sideways. U.S. economic news
and near-record-low global borrowing costs helped soothe jitters
about unrest in Ukraine and offset weak results from Barclays
and Aberdeen Asset Management.
More than 30 pro-Russian separatists were killed in fighting
near the east Ukraine rebel stronghold of Slaviansk, Interior
Minister Arsen Avakov said on Tuesday, as Russia announced plans
to beef up its Black Sea warship fleet.
The simmering unrest lifted safe-haven gold and
pushed wheat prices -- Ukraine and Russia are both big
grain growers -- to a 13-month high.
Russian stocks touched a one-week high, however, benefiting
from lack of actual military intervention by Moscow, and as
emerging markets benefitted generally from the ultra-low global
Among Europe's main bourses, Britain's FTSE 100 and
France's CAC 40 both ran out of steam after an early
push to leave them little changed on the day, along with the DAX
in Germany. Markets in Spain, Portugal and Italy again
set the pace with gains of 0.3, 0.2 and 0.5 percent.
Yields on the peripheral countries' lower-rated bonds also
remained at multi-year - in some cases, all-time - lows.
Investors welcomed Portugal's plans to exit from its bailout
and continued to bet on some future easing of
ECB monetary policy.
"It's a normal step," said KBC strategist Piet Lammens as
Portuguese 10-year yields touched an eight-year low.
"Sentiment in the market is very strong."
Money-market rates, another of the factors the ECB
has said could drive it into action, also relaxed as the recent
uptake of unlimited cheap ECB funding filtered through.
Despite holiday-thinned trading In Asia, stock markets did
get a fillip from the Institute for Supply Management's U.S.
services-sector index. It rose to 55.2 in April, the fastest
pace in eight months and easily topping forecasts. A reading
above 50 indicates expansion.
The data added to evidence that the U.S. economy is emerging
from a slowdown induced by a particularly harsh winter. They
also provided a welcome offset to worries about China.
The CSI300 index of the largest Shanghai and
Shenzhen A-share listings ended steady on the day. Early gains
were limited by weakness in the property sector as investors
braced for any signs of financial distress among developers.
"The U.S. is showing signs of recovering from particularly
slow momentum in Q1, driven to a significant extent by adverse
weather effects, and the euro area remains on a stable, gradual
upward trajectory," noted analysts at Barclays.
With little data coming later, the Dow, S&P 500
and Nasdaq all pointed to only modest 0.05-0.2
percent gains when trading resumes.
Bonds took the opposite course, with Treasuries making back
some of ground they had surrendered on Monday. Yields on 10-year
paper inched up to 2.62 percent in Europe, having
been as low as 2.57 percent.
The U.S. Treasury auctions three-, 10- and 30-year debt this
week, which will be a useful litmus test of investor demand.
(Additional reporting Marius Zaharia in London and Wayne Cole
in Sydney Editing by Larry King)