May Day holidays in Europe and much of Asia muted the market impact on Thursday of data showing China's vast manufacturing sector just missed forecasts, a day after U.S. growth numbers had also disappointed.

The dollar weakened after Wednesday's figures for the first quarter showed fierce winter weather dragging on growth. That and persistent doubts about the European Central Bank's policy plans helped lift the euro, something the ECB, which meets next week and is already sweating about low inflation, will not like.

The holidays in most of continental Europe and large parts of Asia left London as the only major market open in the region.

Its FTSE share index .FTSE climbed to a near two-month high in early trade as more strong UK housing data set the tone ahead of a PMI survey that showed manufacturing activity rose much faster than expected in April.

Sterling jumped to a near five-year high of $1.6921 after the numbers as euro bulls also ran the shared currency up to a three-week peak of $1.3889.

The combination of holidays and the start of a new month meant Europe's money market rates, which underpin the cost of loans to consumers and firms but also impact the euro, remained high despite a flood of extra cash this week.

"The reason (for high EONIA rate) is simply because it was month end yesterday," said one London-based money market trader who requested anonymity. "It will come down tomorrow, though the two day-run (of holidays) mean it probably won't be as straightforward as usual."

DELICATE CHINA

Asian markets wobbled only briefly after China's official manufacturing PMI came in at 50.4 in April, up a tick from March but under forecasts of 50.5, with upbeat earnings news helping Japanese stocks stage their biggest rally in two weeks.

The middling outcome was not enough to lessen concerns about the economy, but did not point to a deepening slowdown.

There was also better news from South Korea as its exports grew at the fastest annual pace in over a year.

The conflicted mood was clear in the Australian dollar, often a bellwether for market thinking on China as the country is a major exporter of resources to the Asian giant.

After an initial dip to $0.9279, the currency quickly rebounded to $0.9290, a shade firmer on the day.

Japan's Nikkei .N225 likewise recovered to close 1.3 percent higher thanks in part to some impressive profit reports.

FED STAYS HOPEFUL

Sentiment had been supported by Wall Street where the Dow notched up its first record high of the year on Wednesday. The Dow .DJI ended up 0.27 percent, while the S&P 500.SPX gained 0.3 percent and the Nasdaq .IXIC 0.27 percent.

That was a resilient performance given that data had shown the U.S. economy grew just 0.1 percent annualized in the first quarter, far below already gloomy forecasts of 1.2 percent.

Net exports, inventories and investment all dragged on growth, with household spending the only bright spot.

But investors have been willing to give the economy the benefit of the doubt in expectations of a rebound this quarter, and other data did offer some supporting evidence.

A closely watched indicator of manufacturing activity in the Chicago area jumped to 63.0 in April, above forecasts, while the ADP report on private sector employment showed a 220,000 rise.

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That fuelled hopes that Friday's April payrolls report will at least meet forecasts of a 210,000 increase in jobs.

The Federal Reserve ended its two-day policy meeting with a relatively upbeat statement as it pared back its monthly bond buying by another $10 billion.

Recent information "indicates that growth in economic activity has picked up ... after having slowed sharply during the winter in part because of adverse weather conditions," the Fed said.

Yields on 10-year Treasuries fell 4 basis points to 2.65 percent, while those on two-year notes dropped a sharp 3 basis points to 0.41 percent.

Interest rate futures also rallied as the market pushed back the likely timing of a first hike by the Fed.

That weighed on the dollar, which dropped to three-week lows against a basket of major currencies .DXY. It lost 0.4 percent overnight against the yen and was last at 102.20.

In commodity markets, oil stayed under pressure after stocks of the fuel in the United States hit a record high.

Brent crude for June delivery was a shade lower at $107.63 on Thursday having shed over a dollar overnight, while June U.S. crude eased a further to $99.38. <O/R>

Spot gold also fared poorly to stand at $1,282 an ounce, after easing 0.4 percent on Wednesday.

(Additional reporting by Wayne Cole in Sydney; Editing by Catherine Evans)