* Second quarter starts with a whimper
* Japanese manufacturing gloom sets the tone
* U.S. non-farm payrolls the big event Friday
By Jamie McGeever
LONDON, April 1 (Reuters) - Gloomy Japanese manufacturing
data on Friday ensured a downbeat start to the second quarter,
driving stocks and oil lower and supporting safe-haven assets
like gold and the Japanese yen.
Still bruised from a turbulent first quarter, investors took
their cue from the Japanese data rather than more encouraging
figures from China's manufacturers, before the pivotal U.S.
payrolls report later in the day.
Japan's Nikkei .N225 sank 3.5 percent in its steepest
daily fall since mid-February, dragging down shares across Asia.
That set the bearish tone for Europe, where the main indices
were all down more than 1 percent in early trading.
The pan-European index of leading 300 shares .FTEU3 fell
to a one-month low of 1,303 points and U.S. stock futures
signalled a decline of around 0.5 percent when trading opens
ESc1 DJc1 .
"Normally, we could expect some sort of upside in the wake
of better-than-expected Chinese manufacturing numbers. Certainly
if they were poor, we'd be looking at a major downdraft in
equities," said Brenda Kelly, head analyst at London Capital
Group. "But the focus appears to be on the negative."
Germany's DAX .GDAXI and France's CAC 40 .FCHI were both
down around 1.7 percent. Britain's FTSE 100 .FTSE was down 1.2
percent.
Financials and insurance stocks were among the biggest
decliners, led by a 9 percent fall in Zurich Insurance ZURN.S ,
as its shares traded without the attraction of its latest
dividend payout.
Earlier in Asia, a profit-dampening rise in the yen and
selling by hedge funds for the new financial year weighed on
Japanese stocks. But the real blow came from a survey of major
manufacturers by the Bank of Japan, which found sentiment at its
lowest in nearly three years
The report crystallised concerns that the BOJ's shift to
negative rates was not working. It also outweighed positive
surveys from China that showed factory activity growing for the
first time in nine months and a much needed pick-up in services
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS lost 1.5 percent.
MARCH PAYROLLS MADNESS
The tepid start to the second quarter follows a wild first
quarter that saw stocks plunge on global growth fears, then
rebound as major central banks took ever more aggressive
stimulus steps.
The latest twist was this week's surprisingly dovish tone
from Federal Reserve Chair Janet Yellen, which saw investors
further scale back expectations for how far and fast U.S.
interest rates would rise in coming years.
Fed fund futures 0#FF: currently have one quarter-point
increase priced in by December. Yields on two-year Treasury
paper US2YT=RR were down at one-month lows around 0.73 percent
before edging back up to 0.76 percent.
Indeed, U.S. Treasuries enjoyed their best quarter in 4 1/2
years. Yields on 10-year notes US10YT=RR dropped 50 basis
points in the three months to March.
The focus on Friday rests on the U.S. employment report for
March. Economists expect an increase of 205,000 jobs, the
unemployment rate holding at 4.9 percent and a rise in average
earnings of 0.2 percent in the month ECONUS .
"The decisively dovish rhetoric from Yellen this week
suggests that today's U.S. data would have to surprise on the
upside in a uniform and very strong fashion in order to provide
something more than a temporary lift to the dollar," Unicredit (MI:CRDI)
analysts wrote in a note to clients on Friday.
The greenback suffered its largest quarterly percentage loss
in more than five years. The dollar index .DXY , which measures
it against a basket of major currencies lost 4.1 percent and on
Thursday hit its lowest since mid-October. It was last trading
at 94.620, steady on the day.
The euro was stronger at $1.1389 EUR= after reaching
$1.1411 on Thursday, the first time it rose above $1.1400 in 5
1/2 months. The dollar fell more against the yen, down 0.3
percent at 112.23 yen JPY= , from as high as 113.80 early in
the week.
While the weaker dollar had been something of a reprieve for
oil, worries about oversupply seemed to dominate in Asia on
Friday. U.S. crude CLc1 fell 0.8 percent to $38.02 a barrel,
while Brent LCOc1 dropped 0.7 percent to $40.02. O/R
Gold XAU= was steadier at $1,231.70 an ounce, after
notching up its biggest quarterly gain in nearly 30 years.
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Shanghai CSI 300 and global effects interactive https://t.co/YqIYLIbInP
Chinese A-shares vs developed and emerging stocks http://link.reuters.com/rac25w
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