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Bank of England expected to keep UK rates on hold later

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Yen backslides again prompting intervention talk

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Chinese stocks outperform after export data and property

moves

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Graphic: World FX rates http://tmsnrt.rs/2egbfVh

By Marc Jones

LONDON, May 9 (Reuters) - World stocks were taking a

well-earned breather on Thursday after a strong few weeks and

ahead of a Bank of England rate decision, while Japanese

authorities ratcheted up intervention talk again as the yen

continued to backslide

After two straight record closing highs, the pan-European

STOXX 600 fluttered 0.1% lower although there was

action in Spain where bank Sabadell's 12 billion euro

($12.87 billion) courtship by rival BBVA suddenly turned

hostile.

The region's bond and FX markets meanwhile were happy to

take it easy ahead of the day's big event - the Bank of

England's 1100 GMT interest rate decision, where it is widely

expected to leave UK rates at 5.25%, where they've been since

August.

With new forecasts coming out too and a post meeting press

conference there will be plenty to chew over.

PIMCO economist Peder Beck-Friis said BoE chief Andrew

Bailey was unlikely to give a clear signal on exactly when the

bank's first cut since 2020 might come, but focus will be on

what guidance he does give and if more than one ratesetter votes

for a cut this time around.

"We know from history that policy meetings may create some

volatility," Beck-Friis said.

"What is also interesting is that we have come from a few

years where monetary policy has been very correlated globally...

but as the pandemic shocks fade I think it is natural that we

see some divergence," he added, pointing to how Sweden and

Switzerland had already cut rates whereas the United States

might need to wait longer.

Overnight in Asia, Chinese trade data and some property

market developments had helped Chinese stocks continue their

recent outperformance. MSCI's dollar-denominated China index has

jumped more than 13% over the last two months.

Customs figures showed that China's imports jumped 8.4% in

April from a year earlier, beating expectations for a rise of

4.8%, while exports returned to growth, meeting forecasts, in a

boost to economic growth.

That helped Chinese shares build on earlier gains, with

blue-chip stocks ending up almost 1% and Hong Kong's

Hang Seng index increasing 1.2%. News that China's

eastern metropolis Hangzhou will lift all home purchase

restrictions in the ailing property sector, a key pillar of

domestic demand, also boosted sentiment.

Property shares surged 2.5% as a result.

"For imports, strength was heavily concentrated in a few

categories. The main theme in our view is the goal to compete in

the AI race," said Lynn Song, chief economist, Greater China, at

ING, adding that imports of data-processing equipment and

integrated circuits have been strong.

"Considering import demand could remain resilient but

exports face a higher level of risk in coming months, we expect

a smaller contribution from trade to (economic) growth starting

in the second quarter."

In other markets, Japan's Nikkei reversed

earlier gains to be off 0.2%. Australia's resources-heavy share

market lost 1.1% while South Korea also

retreated 1%.

Nasdaq and S&P 500 stock futures eased 0.2%,

dragged lower by Uber ( UBER ), which fell 5.7% overnight as the

ride-sharing company issued a downbeat forecast after a surprise

quarterly loss.

BACKSLIDING YEN

The Japanese yen dribbled down to 155.85 per dollar

in a fourth day of falls. It rose more than 3% last

week with market participants pointing to likely intervention by

Japanese authorities twice to stem its fast decline.

Japan's top currency diplomat Masato Kanda had said

overnight there was no limit for reserves in currency

intervention, keeping traders on edge, while minutes from the

Bank of Japan's April meeting also showed policymakers had

turned overwhelmingly hawkish.

New data however showed that Japan's real wages fell 2.5% in

March from a year earlier, marking the second year of decline,

an argument for policymakers to not hike aggressively.

Analysts at Brown Brothers Harriman said that the dollar-yen

rate was now "extremely overvalued" but that it was also

"justified" due to the two countries' real long-term interest

rate differentials.

"We estimate long-term fundamental equilibrium for USD/JPY

at 95.00, implying a 62% overvaluation relative to the current

spot rate," BBH's Elias Haddad said.

In the Treasuries market, yields were little changed after

edging up the day before, with movement likely to be muted ahead

of the U.S. inflation report next week. Two-year yields

held at 4.8511%, while the 10-year yield

was at 4.5062%, having risen 3 basis points overnight to

4.4920%.

Among the main commodities, oil prices nudged higher having

bounced off two-month lows the previous session. Brent

futures rose 0.4% to $83.91 a barrel, while U.S. crude

gained 0.5% to $79.40 a barrel.

Gold prices were 0.3% higher at $2,316.23 per ounce.

($1 = 0.9323 euros)