GLOBAL MARKETS-European shares rally, eyeing ECB rate move

(Updates prices) * ECB seen easing on Thursday, Canada may cut on Wednesday * Treasury yields drop after surprisingly soft US ISM survey * 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 steadied on Monday despite declines on Wall Street following data that showed unexpected weakness in U.S. manufacturing activity, adding to uncertainty about the U.S. interest rate outlook. The cloudy outlook for U.S. rates contrasts with Europe, where investors are looking forward to a 25-basis-point interest rate cut by the European Central Bank on Thursday, which would bring the benchmark rate down to 3.75%. By 1807 GMT, the MSCI All Country World Price Index .MIWD00000PUS added 0.17%. U.S. stocks stayed in the red, 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 .SPX fell 0.3%, the Dow Jones Industrial Average .DJI shed 0.7%, while the Nasdaq Composite .IXIC bucked the downtrend and edged up 0.1%. The pan-European STOXX index .STOXX was up 0.32%. Benchmark U.S. Treasury yields fell to a two-week low and the dollar tumbled after data showed that U.S. manufacturing activity slowed for a second straight month in May, as new goods orders dropped by the most in nearly two years. The soft data supported some speculation that the Federal Reserve might cut interest rates this year, although some investors remained sceptical about the chance of rate cuts with inflation standing above its 2% target. "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 US10YT=RR were last down 11 basis points at 4.4021%, and got as low as 4.404%, the lowest since May 16. Two-year note yields US2YT=RR fell 7 basis points to 4.823% and reached 4.816%, also the lowest since May 21. In Europe, even though the ECB is considered almost certain to trim rates on Thursday, last week's surprisingly strong euro zone inflation data further weakened the case for a rapid round of reductions. Markets now price in fewer than 60 basis points of easing - meaning two 25-basis-point cuts and less than a 50% chance of a third. EUESTECBF=ICAP "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 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 said. Markets also 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 are hopeful the easing will be even deeper. 0#BOCWATCH 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 0.37% to 104.2 =USD . The greenback also fell to a two-week low against the yen following the data and was last down 0.6% at 156.245 JPY=EBS . The euro EUR=EBS rose 0.4% against the dollar to $1.08893. In other currencies, the Mexican peso weakened on Monday after the ruling party declared Claudia Sheinbaum the winner of the presidential election by a "large margin" after polls closed on Sunday. The U.S. dollar was last up 4.5% at 17.754 pesos MXN= . India's rupee INR= strengthened and its stock market .NSEI 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 0.9% at $2,347.55 an ounce XAU= , having now rallied for four months in a row, helped in part by buying from central banks and China. GOL/ Oil prices slumped 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. Some analysts described the group's complicated decision, agreed on Sunday, as incrementally bearish for oil prices. O/R Brent LCOc1 tumbled 3.5% to $78.24 a barrel, while U.S. crude CLc1 dropped 3.78% to $74.07 per barrel. European natural gas prices TRNLTTFMc1 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 on Monday. ($1 = 157.1900 yen) <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Asia stock markets https://tmsnrt.rs/2zpUAr4 Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Yoruk Bahceli and Wayne Cole; Editing by Andrew Heavens and Andrea Ricci) (([email protected]; 612 9171 7144; Reuters Messaging: [email protected])) ((To read Reuters Markets and Finance news, click on https://www.reuters.com/finance/markets For the state of play of Asian stock markets please click on: 0#.INDEXA ))