Recovery Hopes Leave European Shares Hovering At 2-1/2 Month Highs

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European stocks rose to 2-1/2 month highs on Monday on signs that China's slowdown has run its course and expectations that data this week will point to the euro zone pulling out of its longest recession on record.

* European shares hovering at 2-1/2 month highs

* Upbeat data helps Chinese, Asian shares ex-Japan advance

* Gold rises to highest in almost two-weeks

* Dollar edges up but remains near seven-week low

European stocks rose to 2-1/2 month highs on Monday on signs that China's slowdown has run its course and expectations that data this week will point to the euro zone pulling out of its longest recession on record.

Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and Paris's CAC 40 .FCHI all opened the week up 0.1 percent to leave the regional FTSEurofirst 300 .FTEU3 hovering at its highest level since the end of May.

Bond markets were quiet, with Spanish and Italian debt making a little ground, while for currency investors the euro and yen eased against the dollar, which continued to edge away from last week's seven-week low.

Supporting markets, jittery about the prospect of the U.S. Federal Reserve phasing out its support program, was reassuring data from China and expectations that this week's euro zone GDP and sentiment figures will further support hopes the bloc is recovering. ECONG7

"What we saw last week was that the figures from China lent some support to the feeling in the market that the slowdown (in China) is over," said Rabobank economist Elwin de Groot.

"I am a little bit careful though, these are still early days ... but once Asia begins to re-accelerate then that is good for Europe."

In Asian trading, China's CSI300 .CSI300 share index climbed 2.1 percent, extending last Friday's rise after factory output grew in July at its fastest pace since the start of the year.

Data released after the market close on Friday was equally positive, showing Chinese new bank loans and money supply for July came in higher than expected despite a fall in a broad measure of liquidity.

JAPAN'S GROWTH SLOWS

Japan' Nikkei share average .N225 shed 0.7 percent, however, hitting its lowest since June 28, after data showed its economy grew at a slower-than-expected pace in April-June, triggering investors to cut their risk exposure.

But the yen reversed early gains to trade down 0.6 percent at 96.80 yen to the dollar. Earlier, it had strengthened as much as 0.4 percent to 95.92 yen to the dollar, not far from a seven-week peak of 95.810 yen touched last week, and hit a six-week high at 127.97 yen to the euro.

Japan, the world's third-largest economy, grew an annualized 2.6 percent in the second quarter, a third straight quarter of expansion but slower than a downwardly revised 3.8 percent rate in the first quarter.

The median forecast was for annualized growth of 3.6 percent, and so the data may heighten calls to delay a planned sales tax increase.

Yields on benchmark 10-year Japanese government bonds, which move opposite to prices, edged down 0.5 basis point to a three-month low of 0.745 percent.

U.S. stocks were expected to open down 0.1-0.3 percent later. Last week they posted their biggest weekly decline since June as comments from Fed policymakers sparked renewed talk of an early cut in its stimulus.

In commodities markets, copper prices slipped 0.3 percent to around $7,250 a ton after climbing 1.3 percent to a two-month high on Friday after the upbeat Chinese factory data.

They rose 3.9 percent last week to log their best weekly gain in almost a year.

Brent crude prices dipped 0.4 percent to slip below $108 a barrel after they advanced 1.4 percent on Friday to snap a five-day run of loss - the longest since April.

Meanwhile, gold rose 1.3 percent leaving it heading for a fourth straight day of gains. It came as holdings in the world's biggest gold exchange-traded fund rose for the first time in two months.

"The inflows into SPDR are good news," said a trader in Hong Kong. "The fund tends to have an impact on prices because of its size. But I don't think (inflows) will persist as fundamentals for gold are still negative."

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