Euro recovers on factory data but ECB move key

Mon Nov 4, 2013 7:56am EST
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By Richard Hubbard

LONDON (Reuters) - Robust euro zone factory data lifted the single currency off a six-week low on Monday and boosted shares, but did little to shift expectations that the European Central Bank was about to signal a policy easing.

A drop in the currency bloc's inflation to well below the ECB's target level and firm money market rates have convinced many investors a shift in ECB policy is on the way and looks set to support prices until the central bank meets on Thursday.

"The bias remains for it to ease, as markets drive the ECB to address disinflationary pressures building in the euro zone," said Jeremy Stretch, head of currency strategy at CIBC World Markets.

The euro touched a fresh six-week low early on Monday as the rate cut talk spread to Asia, though by midday it had recovered to be up 0.2 percent at $1.3510, helped by the release of positive manufacturing Purchasing Managers' Index (PMI) surveys.

The euro zone PMI showed factory production in the 17-nation bloc had accelerated as expected in October, though it remained weak compared to historical levels. <ID:L5N0IP15N>

"On past performance it is still only consistent with pretty weak industrial production growth. It's rising - but it's hardly at booming levels," said Ben May at Capital Economics.

Europe's broad FTSEurofirst 300 index .FTEU3 nudged up slightly after the surveys for a gain 0.4 percent on the day as it closes in on last-week's five-year high. .EU

The better economic outlook was also expected to lead to a firmer start when Wall St opened, though investors were expected to be in a cautious mood ahead of Friday's key jobs data. .N   Continued...

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange August 26, 2013. REUTERS/Remote/stringer