The euro hovered near two-month highs on Friday as key U.S. data loomed and as traders awaited a Group of Seven meeting of finance ministers, while oil-fired inflation fears lifted gold close to a 5-1/2 month high. European shares rose and the region's bonds were largely unmoved by September data showing manufacturing growth in the euro zone at its slowest pace in 7 months. Attention has now turned to the Institute for Supply Management's U.S. manufacturing report at 1400 GMT [ID:nN29506706]. "A lot of the poor euro zone economic picture is priced in and...people are waiting for the bigger event, the U.S. PMI this afternoon," said a government bond trade in Rome. However, sterling came under pressure, falling to a 7-month low against the euro as dealers took an unexpected decline in the country's manufacturing data as further proof that British interest rates might be close to peaking. The dollar recovered to $1.2400 versus the euro but remained close to the upper limit of its established trading range, after sinking on Thursday.
"We're looking at the closeness of euro/dollar to its July ($1.2461) high. It's the high of a six-month-long range channel and we are waiting for a test to see if we can really push through -- there's a lot riding on what is happening at the moment," said Peter Fontaine, currency strategist at KBC. Gold was flirting with 5-1/2 month highs at just under $420 an ounce on creeping oil-sparked inflation worries and in reaction to the weaker dollar. Platinum also spiked higher after workers went on strike [ID:nL30343700] at the world's two-biggest platinum producers -- Angloplat , which is majority-owned by Anglo-American , and at Impala Platinum . Earlier, Japan's most closely watched business survey -- the "tankan" [ID:nT154231 ] -- beat expectations and rose to a 13-year high but gave the Nikkei average <.N225> and yen only limited support, partly due to a weak outlook. Stubbornly-high oil prices were partly to blame for the weaker Japanese outlook and softer European readings, trading at around $49.40 a barrel on NYMEX, but some investors were holding out hope of a stronger U.S. number in the afternoon. Economists polled by see the ISM index easing to 58.0 in September from 59.0 in August, but some forecasts have been revised up and Treasuries sank on Thursday after a closely watched regional survey came in above expectations. Benchmark U.S. 10-year yields were trading at around 4.14 percent, having hovered near six-month lows of 3.96 percent earlier in the week.
Comparable 10-year European government bonds yielded around 4.00 percent. The FTSE Eurofirst 300 <.FTEU3> index of leading European shares rose 0.6 percent to 993 points, with the FTSE 100 <.FTSE>, Dax <.GDAXI>, and Cac-40 <.FCHI> indexes up between 0.6 percent and 0.8 percent each. Merloni stock sank 11.5 percent after the Italian maker of home appliances cut its 2004 profit forecast [ID:nL01179896], echoing an earlier warning from rival Electrolux by blaming high steel prices. U.S. stocks ended mixed on Thursday, with Merck the outstanding blue-chip faller after it withdrew its arthritis drug Vioxx due to a study showing a higher risk of heart attack and stroke. The Dow Jones industrial average <.DJI> closed down 0.55 percent at 10,080.27 points, and the Nasdaq Composite was up 0.15 percent at 1,896.84. U.S. stock index futures indicated a slightly firmer opening [nL0158550]. The yen eased against the dollar and was trading at around 110.40, failing to hold gains made on the back of the stronger-than-expected headline "tankan" reading. The Nikkei average <.N225> ended 1.49 percent higher at around 10,985 points, led higher by banks and insurers. Other Asian indexes like the Kospi <.KS11>, Hang Seng <.HSI> and Straits Times <.STI> were also higher.///