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Home / Business / GLOBAL MARKETS-European investors hold nerve as Russia-Ukraine warnings … – Reuters
GLOBAL MARKETS-European investors hold nerve as Russia-Ukraine warnings … – Reuters

GLOBAL MARKETS-European investors hold nerve as Russia-Ukraine warnings … – Reuters

Mon Sep 1, 2014 8:06am EDT

 * European markets shrug off Ukraine/Russia tensions     * Euro steady after touching 1-yr low versus dollar in Asia     * Official China manufacturing data underscores cooling risk     * U.S. markets closed for Labor Day holiday      By Marc Jones     LONDON, Sept 1 (Reuters) - European markets cautiously navigated warnings that the conflict in Ukraine was sliding out of control, focusing instead on whether the European Central Bank will strengthen its stimulus plans when it meets this week.     Ukraine reported its forces were under fire again from Russian tanks on Monday as fresh signs emerged that the troubles are damaging the euro zone's already-fragile economy.     Manufacturing output in the bloc grew at its slowest pace in more than a year and factories there reported falling orders as weakness showed up in most corners of the region.        "Although some growth is better than no growth at all, the braking effect of rising economic and geopolitical uncertainties on manufacturers is becoming more visible," said Rob Dobson, senior economist at Markit.     "France remains a real concern, as does Italy's descent from solid expansion to stagnation. Signs that growth impetus waned in the key industrial engine of Germany, and in Spain and the Netherlands too, is also less than reassuring."     Despite the uncertain backdrop, shares on Europe's FTSEurofirst 300 index largely held their ground in morning trading after markets in Asia had also shrugged off some mildly disappointing data from China.      Euro zone periphery bonds suggested that appetite for risk remained alive as they outperformed, while the euro clawed back to $  1.3132 having hit a one-year low against the dollar overnight.      Geopolitics remained front and centre. Ukrainian President Petro Poroshenko warned at the weekend that a "full-scale war" was imminent if Russian troops continued to support pro-Moscow rebels as European leaders threatened new sanctions.       Moscow appeared in no mood to back down though.      Vladimir Putin called on Sunday for immediate talks on the "statehood" of southern and eastern Ukraine and as fighting continued in Ukraine his Foreign Minister, Sergei Lavrov, gave a strong hint Russia would hit back against any new European sanctions.      Russia's economy is already struggling and the threat of new sanctions sent dollar-traded shares in Moscow tumbling and the rouble to a fresh record low.      The euro, in contrast, barely budged in morning trading , while the dollar index hovered at 82.717, near Friday's 13-month high of 82.773.          ENTER THE DRAGHI     Chancellor Angela Merkel acknowledged that enacting further sanctions against Russia could hit the German economy, but said doing nothing in response to Moscow's aggression in Ukraine was "not an option".         The European Central Bank meets on Thursday and is the prime event for markets seeking clarity on the euro zone's response to a stalled recovery, disappearing inflation and the sluggish pace of reform.     Inflation in the 9.6 trillion euro economy dropped to a fresh five-year low of 0.3 percent in August and as the months fly by, the bloc's cushion against Japan-style deflation is getting smaller and smaller.     Benoit Coeure, one of the ECB's top policymakers, said in an interview over the weekend that the bank is ready to adjust its monetary policy further if needed. French Prime Minister Manuel Valls also repeated French calls for the ECB to tackle the problem of an overvalued euro.      "Pressure for the ECB to do more has returned, not only because of weak output/inflation data, but mostly following (ECB's President Mario) Draghi's speech in Jackson Hole," said Frederik Ducrozet, senior euro zone economist at Credit Agricole. Draghi said last month the ECB was prepared to respond with all "available" tools if inflation drops further.     Core euro zone bond yields remained firmly pinned to record lows on Monday as traders continued to pay rather than get paid to hold shorter-term paper from countries like Germany.            CHINA DISAPPOINTS     U.S. markets are closed on Monday for the Labor Day holiday but it will be a busy week for markets including central bank meetings in six of the G-10 and three major emerging markets.       MSCI's broadest index of Asia-Pacific shares outside Japan  had ended up 0.25 percent and Japan's Nikkei stock average finished 0.3 percent higher.     The gains came even after an official index of China's manufacturing sector fell from a 27-month high in August to show slow growth, although it was still the second-highest reading this year.      "The economy still faces considerable downside risks to growth in the second half of the year, which warrants further policy easing," said Qu Hongbin, an economist at HSBC.     The weaker-than-expected data weighed on oil prices. U.S. crude slipped about 0.4 percent to $  95.57 a barrel after marking a monthly loss in August. Brent was off 0.3 percent at $  102.84 a barrel and growth-attuned metal copper also sagged.         The dollar rose slightly against the yen to 104.17, moving back toward last week's seven-month high of 104.49. The Bank of Japan is one of those meeting this week. It is expected to hold fire for now despite weak economic data last week.     (Additional reporting by Lisa Twaronite in Tokyo, Martin Santa in Brussels; Editing by Susan Fenton/Ruth Pitchford) 

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