GLOBAL MARKETS-ECB easing talk lifts shares, pressures euro

Reuters

* ECB meeting, U.S. jobs report to dominate week

* Euro hits 6-week low as ECB seen more dovish on Thursday

* European shares jump, also supported by higher factoryoutput

* Gold, oil seen vulnerable to Fed tapering expectations

By Richard Hubbard

LONDON, Nov 4 (Reuters) - Increased prospects of a EuropeanCentral Bank interest rate cut this year sent the euro to asix-week low on Monday and boosted the region's share markets,which extended gains on robust manufacturing data.

A plunge in the currency bloc's inflation to well below theECB's target level and pressure on money market rates hardenedexpectations last week for a shift in ECB policy and look set tosupport prices until the central bank meets on Thursday.

"Clearly market expectations turned recently in favour of apotential (ECB) rate cut, probably not this week but there's ahigh probability it could be delivered in December," saidPatrick Jacq, a strategist at BNP Paribas in Paris.

Europe's broad FSEurofirst 300 index rose 0.4percent in early deals to be back near last-week's five-yearhigh. The index is up about 14 percent this year.

Data showing factory activity picked up in Spain and Italyin October, following a weekend report that expansion in China'sgiant service sector was gathering momentum, added to thepositive tone, though it mainly served to confirm marketexpectations.

Earlier in Asia, investors shrugged off the Chinese data,preferring to wait for the outcome of the ECB meeting and theU.S. monthly jobs data out at the end of the week.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2 percent while Tokyo markets wereclosed for a holiday. The MSCI world equity index, which tracks shares in 45 nations, was 0.1percent higher.

"I expect this to be a positive week for equities. Europeaneconomic numbers have been good and there are expectations thatFriday's U.S. non-farm payrolls data could surprise on thepositive side," said Christian Stocker, equity strategist atUniCredit.

MORE CASH OR LOWER RATES?

In currency markets, the euro slipped to its lowest levelsince Sept 18 at $1.3443 during the Asian session, havingsuffered its biggest drop in over a year last week. It trimmedits losses when Europe opened to settle around $1.3510.

The bets on an easing in euro zone rates also lifted bothcore and lower-rated euro zone bonds, though there remained adebate among analysts over whether the bank would choose to cutrates or stimulate financial markets with more cash.

"I'd be surprised if they don't do something before theyear-end," said Simon Smith, chief economist at FXPro. "On balance, I'd be thinking they were more likely to do some thingon the liquidity side where it would be more effective."

The Bank of England also holds it policy meeting on Thursdayand is expected to stay on hold following a run of improving UKeconomic data.

Other major currencies were mostly quiet with the dollarwell supported by last week's upbeat U.S. factory data, whichstirred speculation the Federal Reserve might scale back itsbond-buying in December, rather than in March as many in themarket had been anticipating.

Four Fed officials were to make speeches on Monday, startingwith Bank of Dallas President Richard Fisher in Sydney. FedGovernor Jerome Powell and the heads of the St. Louis and BostonFeds are due later in the day.

U.S. DATA

The other big event for markets will be Friday's U.S.payrolls report which is expected to show a modest rise of just125,000 in October, amid uncertainty about the economic impactof last month's government shutdown in Washington.

A soft report, and particularly any rise in the joblessrate, would argue against the Fed tapering its stimulus inDecember.

Also of note will be the U.S. gross domestic product (GDP)due on Thursday, expected to show annualised growth of 1.9percent in the third quarter, down from 2.5 percent the previousquarter.

Commodity prices were held in check by the firm dollar.

Spot gold was trading at $1,314.60 an ounce, havingfallen from a peak of $1,361.60 last week. Copper shed 0.6percent to $7,200 a tonne.

Oil prices steadied following last week's losses as a firmerdollar and ample supplies outweighed concerns about a drop inLibyan crude exports.

Brent crude for December delivery was up 56 cents at $106.48a barrel. U.S. oil for December delivery was 29cents firmer at $94.90.

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