By Marc Jones
LONDON (Reuters) - Wall Street was expected to start the week higher on Monday with a rebound in European stocks, the dollar and oil markets pointing to a tentative recovery in confidence following another difficult day in Asia.
Asia's damage amounted to 1.5-2 percent falls in Australia, Korea and Malaysia, but most of Europe's bourses had managed to shake off a shaky start to the day as the start of U.S. trading approached.
The pan-European FTSEurofirst 300 was up just over 1 percent even though Germany's DAX was stuck in neutral as car giant Volkswagen reversed more than 20 percent after it was found to have cheated U.S. emission tests.
There was, however, brighter news after an unexpectedly clear election victory for the Syriza party in Greece on Sunday boosted hopes its bailout programme would stay on the road. An upgrade for Portugal's sovereign rating also helped the mood in southern euro zone bond markets.
Oil and metals markets also rebounded after falls at the end of last week, although emerging market stocks and currencies continued to struggle amid the global growth worries caused by last week's latest postponement in a long-awaited U.S. rate hike.
MSCI's EM benchmark index dropped 1.5 percent while Malaysia's ringgit hit the skids again after the Wall Street Journal reported the U.S. Federal Bureau of Investigation was looking into money-laundering at troubled Malaysian state fund 1MDB.
"Generally markets are a bit more positive today although nothing that suggests confidence in the wake of decisions by the Federal Reserve not to hike rates last week," said Michael Hewson at CMC markets in London.
"The economic environment has changed since the Fed last hiked rates (in 2006). It is not just the U.S. central bank..., it is wearing the mantle of the global central bank, and markets are struggling with that."
DOLLAR HOVERS
Investors should get a good explanation this week as to exactly why the Fed did not raise rates last week, with its chair Janet Yellen among a host of other officials due to speak.
There will be closely watched economic data from both China and Europe that should also give a clearer picture as to exactly where the global economy is heading.
China was the sole Asian market to defy the region's downtrend on Monday, with the Shanghai Composite index up 1.9 percent and the CSI300 rising 1.75 percent.
Chinese Vice Finance Minister Shi Yaobin sought to soothe nerves about the recent 40 percent slump in China's stocks, saying the volatility was a short-term issue and that its economy could maintain a healthy growth going forward.
A Reuters poll shows economists expect this week's 'flash' September China factory PMI reading to edge up to 47.5 from 47.3 in August. That would keep it near 6/1-2-year lows, however, and mark the seventh straight monthly contraction in activity.
In the currency market, the U.S. dollar index, which fell after last Thursday's Fed decision, rose 0.7 percent to 95.517, as it regained traction against both the yen and euro after an early wobble.
That rise, based on the idea that the Fed will raise U.S. rates at some point, also pushed up U.S. government bond yields after they had also fallen following the Fed meeting.
In Europe, German Bund and other benchmark yields were dragged up in the U.S. slipstream as France's rating downgrade by Moody's on Friday added to the pressure on its bonds.
In contrast, Portuguese bonds made good ground after Standard & Poor's lifted its rating, and periphery markets in general got a boost from Syriza's election win in Greece.
"We will continue negotiations in the coming period, with the debt issue being the first and most important battle," a senior Syriza source told Reuters. "We will ask all political forces to support our efforts."
(Additional reporting By Nichola Saminather in Singapore; Editing by Mark Heinrich)
