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Asian stock markets : https://tmsnrt.rs/2zpUAr4

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Topix hits record top, S&P 500 futures steady

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FTSE, sterling calm as UK heads to polls

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Odds narrow on Sept Fed cut after soft data

(Adds Taiwan stocks, updates prices)

By Wayne Cole

SYDNEY, July 4 (Reuters) - Asia stocks hit 27-month

highs on Thursday as softer U.S. data narrowed the odds on a

September rate cut there, boosting bonds and commodities while

dragging on the dollar.

A holiday in the United States made for thin trading, as

investors waited to see just how large a majority the Labour

Party might get in the UK election.

Markets are well prepared for a change given opinion polls

have for months put the centre-left party on course for a

landslide victory over the Conservatives.

"The Labour party has relatively modest tax and spending

plans, with the overall goal of shrinking the UK's large budget

deficit," CBA analysts said.

"The Labour government's policies will also move the UK back

towards closer alignment to the EU."

Across the English Channel, polls suggested the National

Rally (RN) would not win a majority of seats in Sunday's French

election as mainstream parties moved to block the far right.

FTSE futures nudged up 0.1%, while sterling held at

$1.2740. EUROSTOXX 50 futures were little

changed.

MSCI's broadest index of Asia-Pacific shares outside Japan

rose 0.9% to reach its highest since April 2022.

Japan's Nikkei climbed 0.9% to within spitting

distance of its March peak, while the broader Topix

clinched all-time highs.

Taiwan's main index also struck a record led by the

tech sector and Taiwan Semiconductor Manufacturing Co ( TSM )

which cleared T$1,000 for the first time.

S&P 500 futures and Nasdaq futures were steady

after reaching another record overnight in the wake of soft

economic data.

The U.S. ISM measure of services activity surprised by

sliding to its lowest since mid-2020, with employment notably

weak ahead of the June payrolls report due on Friday.

Analysts cautioned the series was contradicted by strength

in the PMI survey of services, but did note that price measures

in both surveys pointed to easing inflation.

SURPRISE, SURPRISE

A run of subdued data mean Citi's U.S. economic surprise

index has sunk to -47.5, the lowest since August 2022.

Meanwhile, the closely watched Atlanta Fed's GDPNow estimate

fell to just 1.5% from 1.7%.

That should be music to the ears of the Federal Reserve,

with minutes of its last meeting showing committee members

wanted more evidence of a cooling economy before cutting rates.

At the time of that meeting, the GDPNow growth estimate was

running around 3% annualised.

"Reading through the minutes from only three weeks ago, it

is a good reminder of how quickly the activity outlook has

deteriorated," said Paul Ashworth, chief North America economist

at Capital Economics.

"Given the more encouraging personal consumption expenditure

data in May, the risk of a reacceleration in inflation seems

even less likely, particularly with GDP growth now running well

below its potential," he added. "We still think that the Fed

will begin to cut interest rates this September."

Markets quickly lifted the probability of a September rate

cut to 74%, from 65%, while pricing in 47 basis points of easing

for this year.

Yields on 10-year Treasuries dropped 8 basis

points in response to 4.355%.

With the U.S. economy now seemingly less exceptional, the

dollar dropped across the board. The euro was up at $1.0785

, and away from its recent low of $1.0666, while the

dollar index hit its lowest in three weeks.

The Australian dollar was a notable gainer, touching a

six-month peak of $0.6733 as markets are wagering the

next move in local rates could be higher.

The yen remained out in the cold, hitting multi-year lows on

a host of currencies as investors continued to favour carry

trades. The dollar stood at 161.53 yen after striking

a 38-year top of 161.96 overnight.

The drop in the dollar was a boon for commodities, with gold

rallying to $2,358 an ounce, from $2,318 at the start of

the week.

Oil prices eased a touch, having gained overnight when a

surprisingly large decline in U.S. crude stocks pointed to

firmer demand as the U.S. driving season gets underway.

Brent dipped 47 cents to $86.87 a barrel, while U.S.

crude fell 53 cents to $83.35 per barrel.