GLOBAL MARKETS-China PMI lifts shares, commodities, euro soft ahead of ECB

Reuters - UK Focus

* Record Wall St high, upbeat Chinese data lift Europe, Asiashares

* Expected ECB stimulus later in week keeps euro pressured

* Rising risk appetite extends gold's poor run

By Marc Jones

LONDON, June 2 (Reuters) - Reassuring Chinese factory dataand another record high for Wall Street lifted world stocks andcommodities on Monday, as markets waited to see how far theEuropean Central Bank will go with policy easing plans thisweek.

China's manufacturing activity expanded at the fastest pacein five months in May, data showed on Sunday, reinforcing viewsthat the world's second-largest economy is regaining momentumafter a wobble at the start of year.

Basic resources (Frankfurt: W8Z.F - news) stocks including miners and othercommodity companies were the biggest gainers as the main boursesin London and Frankfurt started what is set tobe a busy week for markets on a positive note.

After weeks of speculation about interest rate cuts andadditional unconventional policy easing measures, the ECB meetson Thursday with expectations running extremelyhigh.

The euro fell 0.15 percent to $1.3610, not far from athree-month low of $1.3586 touched on Thursday. It also fellagainst the pound to 81.25 pence, with divergingmonetary policy outlooks between the ECB and the Bank ofEngland, which also meets this week, underpinning the Britishcurrency.

Ahead of the ECB meeting, German inflation data for May dueat around 1200 GMT will be closely watched. The ECB isincreasingly concerned that extremely low inflation could bebecoming entrenched in the euro zone.

Like many banks, Societe Generale (Paris: FR0000130809 - news) expects the ECB to cutrates on Thursday and start charging banks that deposit cashwith it. But its economists also expect a far more aggressive300 billion euro ($409 billion) Aset Backed Securities (ABS)purchase programme to be announced.

"We are expecting quite a slew of measures from the ECB,"said Alvin Tan, an FX strategist at Societe Generale in London.

"In our view all the rate cuts are priced in, even anegative deposit rate, but an asset purchase programme isprobably not, so that would weaken the euro."

RATE EXPECTATIONS

In Asia, the positive sentiment spilling from China hadhelped Tokyo's Nikkei jump 2.1 percent, while Australianshares added 0.3 percent.

MSCI (NYSE: MSCI - news) 's broadest index of Asia-Pacific shares outside Japan was little changed. Greater China (HKSE: 0431.HK - news) markets wereclosed on Monday for a holiday.

"Risk appetite has risen mainly on bright economic data fromChina, but the direction for the month will likely depend onother economic data like U.S. jobs figures this week," saidHikaru Sato, a senior technical analyst at Daiwa Securities (Other OTC: DSECF - news) inTokyo.

The dollar was broadly stronger. It edged up 0.2 percent to102.03 yen thanks in part to slightly higher U.S.Treasury yields and as it rode momentum from Friday's recordclose for S&P 500.

Investors will be looking to this week's non-farm payrollsjobs and wage data for confirmation that recovery for theworld's largest economy is on track.

The good China PMI reading also lifted oil and base metalsby improving demand prospects for the world's second biggesteconomy.

Brent crude gained 40 cents to $109.81 a barrel. Three-month copper on the London Metal Exchange climbed 0.6 percent to $6,888 a tonne. The metal gained 3.1percent in May, its biggest monthly advance since December.

Safe-haven gold slid for a fifth straight session. Spot gold was at $1,245.10 an ounce, not far from the four-monthlow of $1,241.99 hit on Friday.

"It's certainly a good sign to see the PMI starting to pickup, which suggests that the Chinese fine-tuning of policies isstarting to gain a bit of traction which is a positive forindustrial commodities," said analyst James Glenn of NationalAustralia bank.

($1 = 0.7328 Euros) (Additional reporting by Shinichi Saoshiro in Tokyo)

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