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Reassuring Chinese factory data and another record high for Wall Street lifted world stocks and commodities on Monday, as markets waited to see how far the European Central Bank will go with policy easing plans this week.
China's manufacturing activity expanded at the fastest pace in five months in May, data showed on Sunday, reinforcing views that the world's second-largest economy is regaining momentum after a wobble at the start of year.
Basic resources stocks including miners and other commodity companies were the biggest gainers as the main bourses in London and Frankfurt started what is set to be a busy week for markets on a positive note.
After weeks of speculation about interest rate cuts and additional unconventional policy easing measures, the ECB meets on Thursday with expectations running extremely high.
The euro fell 0.15% to $1.3610, not far from a three-month low of $1.3586 touched on Thursday. It also fell against the pound to 81.25 pence, with diverging monetary policy outlooks between the ECB and the Bank of England, which also meets this week, underpinning the British currency.
Ahead of the ECB meeting, German inflation data for May due at around 1200 GMT will be closely watched. The ECB is increasingly concerned that extremely low inflation could be becoming entrenched in the euro zone.
Like many banks, Societe Generale expects the ECB to cut rates on Thursday and start charging banks that deposit cash with it. But its economists also expect a far more aggressive 300 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 a negative deposit rate, but an asset purchase programme is probably not, so that would weaken the euro."
RATE EXPECTATIONS
In Asia, the positive sentiment spilling from China had helped Tokyo's Nikkei jump 2.1%, while Australian shares added 0.3%.
MSCI's broadest index of Asia-Pacific shares outside Japan was little changed. Greater China markets were closed on Monday for a holiday.
"Risk appetite has risen mainly on bright economic data from China, but the direction for the month will likely depend on other economic data like US jobs figures this week," said Hikaru Sato, a senior technical analyst at Daiwa Securities in Tokyo.
The dollar was broadly stronger. It edged up 0.2% to 102.03 yen thanks in part to slightly higher US Treasury yields and as it rode momentum from Friday's record close for S&P 500. [.N]
Investors will be looking to this week's non-farm payrolls jobs and wage data for confirmation that recovery for the world's largest economy is on track.
The good China PMI reading also lifted oil and base metals by improving demand prospects for the world's second biggest economy.
Brent crude gained 40 cents to $109.81 a barrel.
Three-month copper on the London Metal Exchange climbed 0.6% to $6,888 a tonne. The metal gained 3.1% 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-month low of $1,241.99 hit on Friday.
"It's certainly a good sign to see the PMI starting to pick up, which suggests that the Chinese fine-tuning of policies is starting to gain a bit of traction which is a positive for industrial commodities," said analyst James Glenn of National Australia bank.
