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GLOBAL MARKETS-Strong euro zone business growth pushes euro to $1.10

  • 24 March, 2015

* 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 steadied 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.

U.S. stock index futures edged higher ahead of a data deluge including measures on inflation, home prices and sales, and factory activity, starting at 1230 GMT. .SPc1 NDc1

In an indication that the European Central Bank's 1 trillion euro bond-buying programme may already be having a positive impact, 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. ID:nL9N0VT01I

The euro gained 0.4 percent in European trading to hit a six-day high of $1.1003 EUR= , adding to a recent rally after the single currency last week registered its best performance against the dollar in 3-1/2 years.

"Any positive surprises from the euro area are further adding to this euro/dollar rally, however we think this is temporary," said Nikolaos Sgouropoulos, FX strategist at Barclays in London. "We still believe in the dollar strength trend going into the second half of the year."

The dollar plunged last week after the U.S. Federal Reserve 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 .DXY at 96.759, well below its 12-year peak of 100.390 struck on March 13.

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. ID:nS9N0VR00O

At 1150 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares had steadied near a recent 7-1/2-year high at 1,600.76 points after falling earlier in the session on the Chinese data.


CHINA GROWTH WORRIES

Brent crude fell under $56 a barrel LCOc1 on the signs of slowing growth in China and as Saudi Arabia said its production was close to an all-time high. O/R

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. ID:nS7N0W103L

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 .SSEC ended slightly higher, gaining for a 10th straight day in a rally that has pushed major Chinese indexes to their highest levels in nearly seven years.

Japan's Nikkei stock average .N225 slipped 0.2 percent, pulling away from the previous session's 15-year highs.

In Japan, a similar manufacturing survey added to concerns that its slowly recovering economy may also be losing momentum, with activity expanding at a much slower clip as domestic orders contracted. ID:nS7N0W103K

Spain's bond yields lagged a broad rally in euro zone bonds as investors queued up for a rare sale of inflation-linked debt. Yields on the country's 10-year bonds were up 1 basis point at 1.27 percent ES10YT=TWEB , while most other equivalents in the euro zone were 1-2 basis points lower. GVD/EUR

(Additional reporting by Ahmed Aboulenein, Patrick Graham and John Geddie in London, Blaise Robinson in Paris and Lisa Twaronite in Tokyo; Editing by Mark Trevelyan) ((jemima.kelly@thomsonreuters.com)(+44)(0)(20 7542 7508)(Reuters Messaging: jemima.kelly.thomsonreuters@reuters.net))

Keywords: MARKETS GLOBAL/