Stocks Edge Up on Upbeat Manufacturing Data -- 2nd Update

By Riva Gold and Ese Erheriene Features Dow Jones Newswires

Global stocks started the second half of the year firmer as a flurry of manufacturing readings added to confidence in the health of the world economy.

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The Stoxx Europe 600 was up 0.6% midday Monday, on track to snap a four-session losing streak. Asian markets mostly ended slightly higher, while the S&P 500 and Dow Jones Industrial Average were poised to open up 0.3% after closing out their seventh consecutive quarters of gains.

As investors favored risk assets, gold fell 0.7% to $1,233 an ounce, around its lowest since May, while the dollar rose 0.6% against the yen.

Shares of banks, energy companies and miners led gains in Europe Monday, which typically indicates confidence in the strength of the global economy. June marked the best month for eurozone factories in more than six years, data showed Monday, following signs of momentum in Japan and China. Data on U.S. manufacturing are expected later Monday.

"The big question for markets is now: Is this soft patch in the U.S. behind us?" said Michael Herzum, head of multi-asset strategy at Union Investment. Mr. Herzum said that growth momentum appears to have flattened in recent months. If the economy shows an improvement, equities might make more gains, he said.

Oil-and-gas companies also advanced in Europe, tracking higher oil prices after local markets closed Friday though Brent crude oil was last flat at $48.75 a barrel after seven sessions of gains. Shares of France's Total SA rose 1.9%, leading the sector, after it said it would sign a deal that completes a $1 billion investment in an Iranian gas field.

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The euro fell 0.5% to $1.1386. The wider WSJ Dollar Index edged up 0.4% after its worst quarter since the start of 2016.

German 10-year government bond yields fell to 0.455% from 0.472% Friday after European Central Bank executive board member Yves Mersch said Sunday the ECB hasn't yet done enough to create a sustained economic recovery in the eurozone. U.S. 10-year Treasury yields edged up to 2.315% from 2.298% on Friday while two-year yields rose to 1.392% from 1.385%, their highest since 2009. Yields move inversely to prices.

Expectations that global central banks, including the ECB and Bank of England, might be moving away from ultra-accomodative monetary policy sent government bond yields sharply higher last week.

"Our perspective is we're going to have pretty modest growth and modest inflation" in the second half of the year, said Greg Woodard, who directs portfolio strategies at Manning & Napier. Pressure on government bonds should remain modest and stock returns limited, Mr. Woodard said. "We see rates grinding a bit higher but [monetary] conditions are going to remain fairly accommodative around the world," he said.

Among stock investors, many expect the rally to pause after a strong performance in the first half. "We've reduced risk after being long for almost six months," said Mr. Herzum. "We think the bulk of the earnings upgrades are now done," he said.

The second quarter of 2017 featured the smallest decline in the bottom-up earnings-a-share estimate for the S&P 500 in three years, according to analysis by John Butters at FactSet.

Earlier, stocks in Asia mostly inched higher as investors held back on making decisive bets in the absence of a firm lead from the U.S.

Hong Kong's Hang Seng added 0.1% after its best first-half performance since 2009, while Japan's Nikkei Stock Average was also 0.1% higher as a central bank survey showed business confidence among the nation's large manufacturers strengthened to its highest level in more than three years in the second quarter.

Shares of Toshiba fell in afternoon trading, offsetting gains elsewhere, after The Wall Street Journal reported that a plan for the sale of the Japanese company's semiconductor unit includes an option for South Korean chip maker SK Hynix to take a minority stake in the business, contradicting Toshiba's public statements.

The Shanghai Composite inched up 0.1% after a private gauge of China's factory activity rebounded in June to show an expansion, echoing last week's official data.

China's bond market showed little reaction as the Bond Connect link--a program allowing foreign investors to buy into the world's third-biggest bond market via Hong Kong--went live. The newly opened bond-trading link between Hong Kong and mainland China could result in an initial capital inflow of up to $250 billion, according to Ping An Asset Management.

Australia's S&P ASX 200 fell around 0.7%, bucking the regional trend, as major banks extended last week's drop and utilities and property trusts came under pressure.

Trading volumes are expected to be lower at the start of the week ahead of the July 4 holiday in the U.S.

John Wu

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Shen Hong

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Paul Hannon

and Megumi Fujikawa contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Ese Erheriene at ese.erheriene@wsj.com

(END) Dow Jones Newswires

July 03, 2017 07:32 ET (11:32 GMT)