GLOBAL MARKETS-Dollar clings onto gains as equities prepare for earnings

Reuters - UK Focus

* Dollar at 1-week high after strong U.S. jobs data

* U.S. short-term yields near 10-month high

* European shares dip, Wall Street expected to follow

* Earnings in focus, investors see decent profit growth

By Marc Jones

LONDON, July 7 (Reuters) - The dollar and world shares were

losing steam on Monday as the momentum from last week's strong

U.S. jobs data faded and attention began to turn to the

fast-approaching earnings season.

Weak manufacturing data from Germany took the wind out of

European shares and the euro, but for the most part moves were

minor and there was little sign of any nervous reaction in the

region's bond markets.

The dollar was just about clinging onto a fifth straight day

of gains against a basket of other major currencies - its

longest streak of gains since October - but a pause in U.S. bond

yields left it struggling to maintain its altitude.

"Overall the dollar is a bit stronger and that will remain

in place over the next week," said Vasileios Gkionakis, global

head of FX strategy at UniCredit (Milan: UCG.MI - news) in London.

"Rates in the U.S. are going to grind higher, dollar/yen is

going to grind higher and probably in the next week or so

against the euro as well."

Wall Street was expected to start down 0.1-0.2 percent on

reopening after Friday's holiday, according to futures markets

.

After global stocks reached record highs last week,

investors are now looking at whether those share prices will be

justified by quarterly earnings reports and forecasts in the

United States and elsewhere, with aluminium producer Alcoa

kicking off the U.S. earnings season on Tuesday.

German industrial output data soured sentiment in European

share markets as it fell 1.8 percent on the month in May, its

biggest drop in more than two years, confounding expectations of

a steady reading from Europe's manufacturing powerhouse.

Germany's DAX fell 0.2 percent after the industrial

output data.

"It's just more evidence that overall economic growth has

slowed down in the second quarter from the strong first

quarter," Ioan Smith, director at KCG, said.

The data only briefly affected the euro, however, probably

because after four days of falls, most sellers in the market had

been shaken out.

The single currency was quickly back on its feet at $1.3590

versus the dollar. It skimmed a new 22-month low against the

British pound but that was due to bets the Bank of England will

be the first of the world's big central banks to raise interest

rates.

France's CAC 40 share index was down 0.4 percent

after pharmaceuticals heavyweight Sanofi (NasdaqGM: GCVRZ - news) warned

currency effects would dent its earnings. A drop in Vienna's

stock index also weighed on European shares for a second

day, as it tumbled 1.1 percent after falling 3 percent on Friday

on concerns about risks to Austrian banks' business in eastern

Europe.

EARNINGS

Global shares rallied broadly last week, pushing MSCI (NYSE: MSCI - news) 's All

World share index to a record high, as U.S.

employment growth smashed forecasts and unemployment fell to

near a six-year low of 6.1 percent.

Market focus is now shifting to earnings. Analysts polled by

Reuters expect U.S. earnings growth of 6.2 percent for the

second quarter, and a return to double-digits in the third and

fourth quarters of 10.9 percent and 11.9 percent, respectively.

"People said the U.S. earnings would be bad for

January-March but in the end the profits were up. I would expect

decent results (this time)," said Tsuyoshi Shimizu, chief

strategist at Mizuho Asset Management.

Despite the clear improvement in the U.S. jobs market in

recent months, the Federal Reserve is widely expected to keep

interest rates near zero for at least a year. even as it trims

its bond-buying stimulus.

DOLLAR DEMAND

U.S. bond yields, which tend to underpin borrowing costs

globally and jumped after last week's forecast-busting jobs

data, stayed near a 10-month high of 0.5238 percent for two-year

Treasuries as U.S. trading loomed.

The dollar index had also steadied at 80.285 after

hitting its highest level in a week and a half.

In emerging markets, MSCI's emerging market stock

index hit a 13-month high as shares in India hit their third

consecutive record high ahead of this week's budget.

Indonesian markets also rallied ahead of a

presidential election on Wednesday where Jakarta Governor Joko

"Jokowi" Widodo, seen as market friendly, is neck-and-neck in

opinion polls with former special forces chief Prabowo Subianto.

Among commodities, U.S. crude oil futures traded

little changed at $103.88 per barrel, near Friday's low of

$103.67, as Libya geared up to resume exports after the end of a

rebel group's almost year-long blockage of two major ports.

With safe-haven assets out of favour, spot gold

slipped 0.5 percent to $1,314 an ounce, after five consecutive

weekly gains. Silver fell 1 percent.

(Additional reporting by Alistair Smout in Edinburgh; Editing

by Susan Fenton)

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