GLOBAL MARKETS-Shares, euro consolidate from lows, remain vulnerable

By Chikako Mogi TOKYO, May 28 (Reuters) - Asian shares and the euro edged up from lows on Monday as surveys showing a lead in opinion polls for Greece's pro-bailout camps helped ease risk aversion and calm fears of a disorderly exit from the euro bloc. The MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.2 percent, after hitting its lowest level since late December on Friday. The pan-Asia stock index posted a third consecutive week of losses last week, shedding 0.8 percent for its longest losing streak in six months. The index has now wiped out all its gains for the year, having been up some 15 percent from end-2011 levels in late February. Japan's Nikkei average opened up 0.3 percent. It posted its longest weekly losing run in 20 years last week. Investors sold off riskier assets and fled to the safety of the U.S. dollar last week on mounting concerns about Greece and instability in the Spanish banking sector amid a lack of immediate policy responses from European leaders. Currency speculators raised long dollar positions to the highest level since at least mid-2008 while euro short positions rose to the highest on record, Commodity Futures Trading Commission data showed on Friday. Speculators also were net short on the Australian dollar, having cut their net long positions all month. "In the absence of bold policy responses from Europe so far, we recommend being long the USD and JPY," Barclays Capital analysts said in a research note. "Should data or headlines surprise to the upside, safe haven longs may see some unwind, and we favour fading these moves," they said. Trading is expected to be subdued on Monday amid a lack of key economic data and a U.S. market holiday for Memorial Day. U.S. crude rose 0.5 percent to $91.31 a barrel on Monday while Brent was up 0.1 percent at $106.97 a barrel. EURO ON GUARD The euro was up 0.4 percent at $1.2561 on Monday while the Australian dollar inched up 0.1 percent to $0.9810, well above a six-month low of $0.9690 hit last week. The euro fell to its lowest since July, 2010, on Friday at $1.2495, after the president of Catalonia, Spain's wealthiest autonomous region, said it was running out of options for refinancing more than 13 billion euros ($16.27 billion) in debt due this year. Sentiment has been weakening on fears that rising bank rescue costs could force the euro zone's fourth largest economy to seek an international bailout. A government source said on Sunday that Spain may recapitalise its fourth-largest bank, Bankia, which last week asked for 19 billion euros in funding ($24 billion). with government bonds in return for shares. On a positive note, surveys showed on Saturday Greece's conservatives have regained an opinion poll lead that would allow the formation of a government committed to keeping the country in the euro zone. Uncertainty, however, will persist until Greece holds the crucial election on June 17, keeping markets guarded. Switzerland is drawing up plans for emergency measures including capital controls in case the euro collapses, although it does not expect to need them and will continue to defend a cap on the franc in the meantime, the head of the central bank said. Investors cut their risk exposure across assets. Data from EPFR Global showed in the week ending May 23, Emerging Markets Equity, Commodities and Energy Sector Funds and Europe Equity Funds all saw redemptions in excess of $1 billion while High Yield Bond Funds had their biggest outflows in over nine months.

U.S. Manufacturing Grows at Fastest Pace in a Year

Manufacturing grew in April at the fastest pace in almost a year, propelled by a pickup in orders that signaled factories will remain a source of strength for the U.S. expansion. The Institute for Supply Management’s factory index climbed to 54.8 last month, exceeding the most optimistic forecast in a Bloomberg News survey and the best reading since June, the Tempe, Arizona-based group’s report showed today. Readings greater than 50 signal growth. The world’s largest economy may pick up after slowing in the first three months of the year as the increase in bookings indicates American assembly lines will keep churning out more goods. Combined with a report showing manufacturing in China also accelerated, the figures sent the Dow Jones Industrial Average to the highest level since 2007 as the data eased concern global growth was slackening. Manufacturing “continues to be a bright spot in the recovery,” said Ellen Zentner, a senior U.S. economist at Nomura Securities International Inc. in New York. “We have yet to see a drop-off in foreign demand for U.S.-manufactured goods, and that comes despite all the concerns of a slowdown in the global economy.” The Dow gained 0.5 percent to close at 13,279.32 at the close in New York. The yield on the benchmark 10-year Treasury note rose to 1.95 percent from 1.91 percent late yesterday. Elsewhere, China’s manufacturing expanded for a fifth month in April to reach the highest level in a year. The news wasn’t universally good as a U.K. manufacturing index fell more than forecast in April as export orders fell the most since May 2009. Survey Results The median forecast in a Bloomberg News survey of 79 economists projected the ISM index would drop to 53 from a reading of 53.4 in March. Estimates ranged from 52 to 54. The gauge averaged 55.2 in 2011 and 57.3 a year earlier. The group’s orders gauge climbed to the highest level in a year, while its production measure put it its best performance since March 2011 and employment advanced to a 10-month high, today’s report showed. The group’s export index also improved. “We seem to have good, strong order books filling up for the next few months, and that bodes well,” Bradley Holcomb, chairman of the ISM’s factory survey said in a telephone interview. “Things are moving forward and moving forward at a good sustainable level, not indicating at this point any slowdowns.” Auto Sales Stronger auto production bolstered the U.S. economy from January through March, which may keep supporting manufacturing. Motor vehicle output added 1.12 percentage points to growth, the most since the third quarter of 2009 and accounting for half of the 2.2 percent increase in gross domestic product. Cars last quarter sold at the fastest pace in four years, according to industry data. The pickup in demand is holding up so far in the second quarter. Chrysler Group LLC led the five largest automakers by U.S. sales in exceeding analysts’ estimates for April. Chrysler’s sales climbed 20 percent and Toyota Motor Corp.’s deliveries rose 12 percent. Purchases were little changed at a 14.38 million annual rate last month after 14.32 million in March, according to data from Ward’s Automotive Group. Manufacturers mentioned gains in automotive and high- technology industries, the Fed said in its Beige Book business survey, published April 11. The firms “expressed optimism about near-term growth prospects, but they are somewhat concerned about rising petroleum prices,” the Fed said in the report. Industrial Demand 3M Co. (MMM), the maker of fuel system tune-up kits and Post-it Notes, posted first-quarter profit that beat analysts’ estimates because of rising U.S. auto and industrial demand. The St. Paul, Minnesota-based company’s industrial and transportation unit posted sales of $2.66 billion, an 8.6 percent increase. At the same time, other areas may not be helping to support manufacturing in coming months. Business spending on equipment and software in the first quarter rose at the weakest in almost three years, a Commerce Department report showed last week. Overseas demand for U.S. made-goods also risks fading as global growth slows. Spain’s economy contracted in the first quarter, putting the euro region’s fourth-largest economy into its second recession since 2009. The U.K. economy shrank 0.2 percent in the first quarter after contracting 0.3 percent in the prior three months as Britain slid into its first double dip recession since the 1970s. ‘Uneven’ Economy “The global economy is uneven,” John Faraci, chairman and chief executive officer of International Paper Co. (IP), said during an April 27 earnings call. “We got a recession going on in Western Europe. The growth has slowed in China and India. And North Americas is a recovering but far from fully recovered economic environment.” Another report today showed construction spending in the U.S. grew less than forecast in March as state and local government agencies continued to pull back. The 0.1 percent increase followed a 1.4 percent decline in February that was larger than previously estimated, the Commerce Department reported. The median estimate of economists surveyed by Bloomberg called for a 0.5 percent increase.