Volkswacht Bodensee - European stocks tread water awaiting US rate clues

Asian markets had rallied earlier, tracking the strong gains in New York last Friday after a forecast-busting US jobs report and a rebound in regional banking stocks that had sparked fears of wider financial industry fragility.

The strong labour market fuelled hopes the Federal Reserve would succeed in its quest to curb inflation while avoiding a "hard landing" or even recession, whose effects would be felt worldwide.

"Investors continue to be relieved by the American employment numbers, which prove the labour market's resistance despite tighter monetary policy," said Pierre Veyret, an analyst at ActivTrades.

"Nonetheless, the volatility is probably not over, because the main worries, linked to further tightening by the ECB, and the standoff over the US debt ceiling and the bank sector crisis, remain," he said.

Both the Fed and the European Central Bank raised benchmark rates by 25 basis points last week, prompting keen investor focus on US consumer and producer inflation figures that are due starting Wednesday.

The data "should all show that the disinflation trend is now firmly in place", ING analysts said.

But Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, cautioned that "any upside surprise in inflation figures would bring the Fed hawks back to the market", potentially weighing on stocks.

Investors also remain wary of any further upheaval in the US financial system following last week's turmoil that saw the sale of the embattled First Republic Bank to JPMorgan Chase.

That followed the collapse in March of three other banks and the takeover of Credit Suisse by UBS, which sparked panic on trading floors.

- Jobs data jump -

Chicago Fed chief Austan Goolsbee warned on Friday that it was "way too premature" to say if there would be another rate increase next month but warned the banking turmoil would likely drag on the economy.

There are also growing worries about a possible catastrophic US debt default, as right-wing Republicans square off against President Joe Biden over spending plans.

Treasury Secretary Janet Yellen is warning the country could run out of cash to pay its bills as soon as the start of June unless Congress raises the debt limit.

While many commentators believe lawmakers will come to a deal to lift the borrowing ceiling, as they have every time in the past, there remain fears that the unthinkable could happen and spark an economic crisis.

"Historically, markets have not started worrying about a debt limit default until two-four weeks before the anticipated x-date (believed to be the end of July)," said SPI Asset Management's Stephen Innes.

"But anxiety is building early this time and shifted into high gear last week after Secretary Yellen warned that a default could occur as soon as June 1."

The Paris and Frankfurt markets were slightly higher, while London was closed for a bank holiday marking the weekend's coronation of Charles III.

A surprise 3.4 percent drop in German industrial production in March underscored fears that Europe's biggest economy could be facing recession, but equity investors had expected the downshift.

German market analyst Andreas Lipkow said firms had benefited for months from a post-Covid rebound as Chinese factories emerged from lockdowns. "This 'base effect' is now over" and returning to normal levels, he told AFP.

Hong Kong, Shanghai, Mumbai and Bangkok led gains in Asia by putting on more than one percent each, while Sydney, Seoul, Taipei, Wellington and Jakarta were also in the green.

But Tokyo was dragged down by a retreat in banks as investors returned from an extended break to play catch-up with last week's sell-off.

- Key figures around 1400 GMT -

Tokyo - Nikkei 225: DOWN 0.7 percent at 28,949.88 (close)

Hong Kong - Hang Seng Index: UP 1.2 percent at 20,297.03 (close)

Shanghai - Composite: UP 1.8 percent at 3,395.00 (close)

EURO STOXX 50: UP 0.1 percent at 4,344.25

London - FTSE 100 (closed for holiday)

Frankfurt - DAX: FLAT at 15,946.46

Paris - CAC 40: FLAT at 7,434.78

Dow - DOWN 0.1 percent at 33,610.00

Euro/dollar: UP at $1.1036 from $1.1022 on Friday

Pound/dollar: UP at $1.2653 from $1.2632

Dollar/yen: UP at 134.93 yen from 134.83 yen

Euro/pound: UP at 87.3 pence from 87.22 pence

West Texas Intermediate: UP 2.2 percent at $72.91 per barrel

Brent North Sea crude: UP 1.8 percent at $76.68 per barrel

burs-js/jm

O.Bulka--BTB