(Updates prices)

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ECB seen easing on Thursday, Canada may cut on Wednesday

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Treasury yields drop after surprisingly soft US ISM survey

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Oil drops after OPEC+ cuts, European gas prices surge on

outage

By Koh Gui Qing and Yoruk Bahceli

NEW YORK/LONDON June 3 (Reuters) - World stocks rose on

Monday despite a subdued Wall Street following unexpected

weakness in U.S. manufacturing data, feeding uncertainty about

the U.S. interest rate outlook as the euro zone prepared for a

rate cut on Thursday.

By early evening in New York, the MSCI All Country World

Price Index added 0.41%. U.S. stocks alternated

between gains and losses, amid a reported technical glitch on

the New York Stock Exchange regarding "Limit Up-Limit Down"

bands that sent dozen of stocks listed on the exchange into

volatility pauses.

The exchange said it was investigating the problem and will

provide information as soon as possible.

The S&P 500 index edged up 0.1%, the Dow Jones

Industrial Average shed 0.3%, and the Nasdaq Composite

rose 0.6%. The pan-European STOXX index was up

0.32%.

Benchmark U.S. Treasury yields fell to a two-week low and

the dollar tumbled after data showed U.S. manufacturing activity

slowed for a second straight month in May. New goods orders

dropped by the most in nearly two years.

The soft data supported speculation the Federal Reserve

might cut rates this year, although some investors remained

skeptical, since inflation remains above the Fed's 2% target.

In Europe, investors expect the European Central Bank on

Thursday to cut the benchmark rate by 25 basis points to 3.75%.

"We see inflation limiting how much central banks can cut

interest rates," Jean Boivin, the head of Blackrock Investment

Institute, said. "We see them keeping rates high for longer."

Benchmark 10-year note yields were lost as much

as 11 basis points at 4.4021%, and got as low as 4.404%, the

lowest since May 16. Two-year note yields fell 7

basis points to 4.823% and reached 4.816%, also the lowest since

May 21.

The ECB is considered almost certain to trim rates on

Thursday, yet after last week's surprisingly strong euro zone

inflation data, markets now price in fewer than 60 basis points

of easing.

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

which seems like a continuation of the positive momentum seen on

Friday, albeit it 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 in May grew at the fastest pace in

about two years, data showed on Monday. That extended optimism

in markets following Friday figures showing the Fed'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 25 bp reduction on Thursday," Brown said.

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

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

of easing this year, though analysts hope the easing will be

greater.

ASIAN STRENGTH

The dollar fell to a three-week low after the weak U.S.

manufacturing data. The dollar index, a measure of the U.S.

currency's value versus six major currencies, slipped 0.48% to

104.09.

The greenback also fell to a two-week low against the yen

following the data and was last down 0.6% at 156.245.

The euro rose 0.5% against the dollar to $1.0901.

In other currencies, the Mexican peso weakened after the

ruling party declared Claudia Sheinbaum winner of the

presidential election by a "large margin". The U.S. dollar was

last up 4.1% at 17.70 pesos.

India's rupee strengthened and its stock market

rose to a record high, buoyed by expectations of

sustained economic growth as Prime Minister Narendra Modi looked

set for a third term.

Gold was up 1% at $2,350.17 an ounce, having now

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

central banks and China.

Oil prices slumped a day after OPEC+ made a complicated

decision on output that some analysts described as incrementally

bearish for oil prices.

Brent tumbled 3.61% to $78.18 a barrel, while U.S.

crude dropped 3.78% to $74.08 per barrel.

European natural gas prices rose more than 8%

to their highest this year at over 37 euros/ MWh as an outage in

Norway, which overtook Russia in 2022 as Europe's biggest gas

supplier, pushed exports sharply lower.

($1 = 157.1900 yen)