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

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ECB seen easing on Thursday, Canada may cut on Wednesday

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Factory activity up in China

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Focus on US ISM surveys, May payrolls reports

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Oil prices see-saw as OPEC+ extends most output cuts

(Updates with European markets open)

By Yoruk Bahceli

June 3 (Reuters) - European stocks bounced and

government bond yields dropped on Monday as investors looked

forward to an interest rate cut from the European Central Bank

(ECB), while U.S. jobs data kept the focus squarely on

inflation.

The pan-European STOXX index was up 0.6% by 0850

GMT, while U.S. stock futures also rose.

In bond markets, the U.S. 10-year Treasury yield

was down 4 basis points to 4.47% and German yields,

which touched six-month highs last week, also dropped.

All focus was on the ECB, which is considered almost certain

to trim rates by a quarter point to 3.75% on Thursday, which

would make it the first major central bank to cut rates this

cycle.

However a surprisingly high reading for euro zone inflation,

out last week, further weakened the case for a rapid round of

reductions. Markets now price in fewer than 60 basis points of

easing now - meaning two 25-basis point cuts and less than a 50%

chance of a third.

"There's a relatively positive risk tone to start the week,

which seems like a continuation of the positive momentum seen on

Friday, albeit is somewhat surprising given the bumper calendar

of event risk coming up," said Michael Brown, strategist at

broker Pepperstone in London.

China's factory activity grew at the fastest pace in about

two years in May, data showed on Monday. That extended the

optimism prevailing in markets following Friday figures showing

the U.S. Federal Reserve's preferred measure of inflation held

steady in April.

"The ECB decision is perhaps the most important event to

watch, particularly after last week's inflation data which

raises the hawkish risk that there is only one more cut this

year after a 25bp reduction on Thursday," Brown added.

Markets also imply around an 80% chance the Bank of Canada

will cut at its meeting on Wednesday and around 60 basis points

of easing this year, though analysts are hopeful the easing will

be even deeper.

Investors are a lot less dovish on the Fed, seeing little

prospect of a move until September, though the odds of a move

then increased after Friday's inflation data. They price in only

a 50% chance of a second cut by December.

The outlook could change this week given data due includes

key surveys on services and manufacturing, and the May payrolls

report in which unemployment is seen holding at 3.9% as 190,000

net new jobs are created.

In Europe, focus was also on a downgrade to France's credit

rating by Standard & Poor's, but the country's bonds showed

little reaction.

ASIAN STRENGTH

Currency markets saw the U.S. dollar start June

higher, rising 0.1% against a basket of peers after it posted

its first monthly decline of 2024 in May.

The euro was a touch lower against the dollar at

$1.0838.

The yen, this year's worst performing G10 currency

hurt by low Bank of Japan interest rates, edged higher against

the dollar at 157.040, but was close to last week's four-week

low of 157.715.

Emerging markets were in focus, with India's rupee

strengthening and the Mexican peso weakening following

exit poll results from general elections in both countries.

Asian stocks rose on the back of the

strong Chinese data, along with prints from Japan and South

Korea, while Indian stocks hit record highs.

Gold was steady at $2,327 an ounce, having now

rallied for four months in a row helped in part by buying from

central banks and China.

Oil prices see-sawed after OPEC+ agreed on Sunday to extend

most of its oil output cuts into 2025, though some cuts will

start to be unwound from October 2024 onwards.

Brent was last up 0.3% to $81.35 a barrel, while

U.S. crude was up similarly to $77.21 per barrel.

($1 = 157.1900 yen)