* Better-than-expected European PMIs boost euro, hurt dollar
* Gauge shows China factory activity skids to 11-month low
* Cautious Fed view on rate hike keeps dollar off recent highs
By Jemima Kelly
LONDON, March 24 (Reuters) - The euro rose and European shares edged up on Tuesday, responding to signs the euro zone economy is gaining momentum, while a slowdown in factory activity in China kept oil and commodities-linked assets under pressure.
In a sign the European Central Bank's bond buying programme
may already be paying dividends, a composite purchasing
managers' survey for the 19 members of the euro zone jumped to a
near four-year high of 54.1 in March, well above forecasts.
The euro gained 0.4 percent in early European trading to hit
a six-day high of $1.1001
At 0850 GMT, the FTSEurofirst 300
"The environment for the euro zone is getting extremely positive: low interest rates, a weakening euro and falling commodity prices, coupled with strong action from the ECB," said Christian Jimenez, fund manager and president of Diamant Bleu Gestion, in Paris.
"The only big risk seen in the medium term is the prospect of a rate hike by the Fed, but that's mostly priced in already."
San Francisco Federal Reserve Bank President John Williams
said on Tuesday the strong dollar would drag on U.S. growth this
year, though the economy was strong enough to handle it.
The dollar plunged last week after the Fed cut its inflation outlook and its growth forecast and the market pushed out its consensus of when the Fed will raise rates to at least September.
On Tuesday the dollar was down 0.3 percent against a basket
of major currencies
CHINA GROWTH WORRIES
Brent crude oil held close to $56 a barrel
The China flash HSBC/Markit Purchasing Managers' Index (PMI)
dipped to 49.2 in March, below the 50-point level that separates
expansion from contraction. Economists polled by Reuters had
forecast a reading of 50.6, slightly weaker than February's
final PMI of 50.7.
The private survey is likely to add to calls for more monetary easing from Beijing.
"China is the big risk," said Ian Stannard, head of European FX strategy at Morgan Stanley in London. "It can put the whole of Asia ex-Japan under pressure and there is some feed-through to G10 through the commodity currencies."
The Shanghai Composite share index
Japan's Nikkei stock average
In Japan, a similar manufacturing survey added to concerns
that its slowly recovering economy also may be losing momentum,
with activity expanding at a much slower clip as domestic orders
Ahead of a closely watched Spanish inflation-linked debt sale, Spanish and Italian 10-year bond yields rose 4 basis points in early trading to 1.30 and 1.33 percent, respectively.
German equivalents - the euro zone benchmark - were flat at
(Additional reporting by Patrick Graham and John Geddie in London, Blaise Robinson in Paris and Lisa Twaronite in Tokyo; editing by John Stonestreet) ((firstname.lastname@example.org)(+44)(0)(20 7542 7508)(Reuters Messaging: email@example.com))
Keywords: MARKETS GLOBAL/