GLOBAL MARKETS-World stocks edge up, central banks on market's mind

Reuters

* Wall Street looks to build on recent gains

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

* Euro off 6-week low, shares firm on solid factory data

* ECB seen flagging policy easing

* Gold, oil seen vulnerable to Fed tapering expectations

By Steven C. Johnson

NEW YORK, Nov 4 (Reuters) - Major world stock indexes roseon Monday, with the S&P 500 poised to extend a four-week winningstreak, while European manufacturing data helped the eurorecover from a six-week low.

At the same time, a report showing a drop in U.S. businessinvestment in September clouded views on when the FederalReserve will start withdrawing its stimulus spending.

The European Central Bank, meanwhile, is widely expected toease monetary policy further, with some market participantsbelieving it could cut its benchmark interest rate this week.

Even an acceleration in euro zone factory production lastmonth was not enough to dash those expectations as the sectorwas fragile compared with historical levels.

"The bias remains for (the ECB) to ease, as markets drivethe ECB to address disinflationary pressures," said JeremyStretch, head of currency strategy at CIBC World Markets.

The euro was last up about 0.2 percent at $1.3517 while Europe's broad FTSEurofirst 300 index closed 0.3percent higher, leaving it close to last-week's five-year high.

Predicting the U.S. Federal Reserve's next move has proved abit trickier. Upbeat U.S. factory data last week stirred talkthat it could start winding down its stimulus program as soon asnext month rather than waiting until March. That has supportedthe U.S. dollar and limited oil price gains.

But St. Louis Fed President James Bullard on Monday said thecentral bank need not rush because inflation remains low.

Another top official, Fed Board Governor Jerome Powell, saidthe timing of the eventual decision to slow the central bank'smonthly bond purchases "is necessarily uncertain, as it dependson the evolution of the economy."

Data so far has been inconclusive, and economists expectgrowth likely slowed to a 1.9 percent rate in the third quarterfrom 2.5 percent between April and June.

On Monday, the Commerce Department said new orders ofnon-military capital goods other than aircraft, an indicator ofbusiness spending plans, fell 1.3 percent during the month.

"The U.S. economy appears to be growing at two speeds -manufacturing is expanding, while the labor market and householdspending remain subdued," said Russ Koesterich, global chiefinvestment strategist at BlackRock.

"Whether it happens in December or the next several months,investors are keenly aware that it will happen and at some pointthat dynamic will end," Andre Bakhos, managing director atJanlyn Capital LLC in Bernardsville, New Jersey, said of theFed's tapering.

Fed stimulus has been a boon for Wall Street over the lastfew years; the benchmark Standard & Poor's 500 index is up 23.7percent this year and last week closed at a record high.

The Dow Jones industrial average was up 7.18 points,or 0.05 percent, at 15,622.73. The Standard & Poor's 500 Index was up 3.87 points, or 0.22 percent, at 1,765.51. TheNasdaq Composite Index was up 8.70 points, or 0.22percent, at 3,930.74.

U.S. government bond prices rose slightly, with the 10-yearnote up 5/32, to yield 2.6017 percent.

A weekend report pointing to expansion in China's giantservice sector did little to invigorate Asian markets. MSCI'sbroadest index of Asia-Pacific shares outside Japan eased 0.2 percent while Tokyo markets wereclosed for a holiday.

The MSCI world equity index, which tracksshares in 45 nations, was 0.3 percent higher.

U.S. GROWTH OUTLOOK, ECB'S CHOICES

The overall global growth picture should get clearer laterthis week with Friday's release of the U.S. October payrollsreport. Economists are betting that uncertainty over the partialgovernment shutdown last month held hiring to a modest 125,000.

If that resulted in a higher jobless rate, the Fed might beinclined to wait until next year to ease up on its stimulus.

Spot gold prices fell 20 cents to $1,314.50, whileoil prices steadied following last week's losses on amplesupply. U.S. crude slipped 5 cents to $94.56 per barrel.

In fixed income markets, bets on lower euro zone interestrates lifted both core and lower-rated euro zone bonds, thoughanalysts debated over which policy tool the ECB might choose touse.

In addition to a cut in its main refinancing rate, now at0.5 percent, the ECB could reduce the deposit rate to belowzero, which would have a bigger effect on money markets. It mayeven promise another long-term refinancing operation to ensurebanks have plentiful liquidity. [ID:nL5N0IN04N}

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

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