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GLOBAL MARKETS-Asian stocks edge up after strong China manufacturing survey

* China’s Caixin factory PMI hits best level in almost decade

* Australia shares hit four-week low, shrug central bank liquidity

* Despite stock pullback, S&P posts best August since 1986

* European stocks futures up 0.7% in early trade

SYDNEY/NEW YORK, Sept 1 (Reuters) - Asian stocks edged higher on Tuesday after strong readings on China’s vast manufacturing sector offset the weak lead from a softer Wall Street session.

European shares are expected to rebound from Monday’s falls with pan-European Euro Stoxx 50 futures up 0.74% in early trade.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3%, to regain some ground lost on Monday.

The Hang Seng Index in Hong Kong traded 0.3% higher while the Shanghai Composite also recovered early losses to stand 0.1% higher. Japan’s Nikkei 225 erased early losses to trade flat.

The Caixin/Markit Manufacturing Purchasing Managers’ Index(PMI) showed China’s factory activity expanded at the fastest clip in nearly a decade in August, bolstered by the first increase in new export orders this year.

The strong reading shows activity in the worlds’ second-biggest economy is bouncing back, “as the world begins to come out of the enforced lockdown for the virus,” said Ben Powell, chief investment strategist for Asia Pacific at the BlackRock’s Investment Institute.

“With interest rates even lower for even longer,” investors are likely to keep moving away from developed markets and government bonds, into other risky assets including Asian equities, Powell told Reuters.

Taiwan stocks gained 0.7% after the United States said on Monday it was establishing a new bilateral economic dialogue with the country, an initiative it said was designed to support Taipei.

Australia’s S&P/ASX 200 was an outlier, declining to four-week lows on rising diplomatic tensions between Canberra and Beijing.

Investors shrugged off the Reserve Bank of Australia’s move to unexpectedly boost cheap term funding for banks, as the economy looked set to post its worst contraction since the Great Depression.

“What we are seeing here is the slow but choppy export recovery that is taking a bit longer than maybe some market participants thought it would - and that’s because markets remain largely out of sync,” said Daniel Gerard, senior multi asset strategist at State Street Global Markets, based in Singapore.

“China’s recovery is helping with the improvement of regional Asia exports, but Europe and North America imports lag.”

On Wall Street, the Dow Jones Industrial Average and the S&P 500 ended in the red overnight, while the Nasdaq rallied for a fifth straight month..

The S&P gained more than 7% for the month to notch its best August since 1986 in what is traditionally a softer month for stock performance.

Wall Street declines overnight were mostly caused by month-end portfolio rebalancing “rather than a new trend in equities,” said Rodrigo Catril, senior FX strategist at NAB Market Research in Sydney. E-Mini futures for the S&P 500 were up 0.1%.

In currencies, the dollar dropped against a basket of major currencies early on Tuesday. The dollar index fell 0.4%, with the euro up 0.5% to $1.1993.

The Japanese yen strengthened 0.1% versus the greenback at 105.75 per dollar, while Sterling was last trading at $1.3410, up 0.3% on the day.

Expectations that the Fed will keep interest rates low for an extended period kept the dollar soft, marking a fourth straight month of declines in August, its longest losing streak since 2017.

Fed Vice Chair Richard Clarida on Monday expanded on Governor Jerome Powell’s comments from last week, saying that under the U.S. central bank’s new policy view, a low rate of unemployment does not on its own trigger higher interest rates.

Last week, the Fed said its new strategy plan is to use higher inflation when the economy is robust to offset the impact of periods of weaker prices.

The Australian dollar stood up 0.4% at $0.7470.

In commodity markets, oil prices rose, reversing overnight losses, as investors shifted to risk assets.

Brent crude climbed 46 cents, or 1.02%, to $45.74 a barrel, after rising 0.5% to $45.28 on Monday. U.S. crude was 38 cents higher, up 0.9%, to $42.99 a barrel, having fallen 0.8% in the previous session.

Elsewhere, gold gained to $1,986 an ounce, up 0.8% on the day.

Reporting by Alwyn Scott and Herbert Lash; Editing by Hideyuki Sano and Sam Holmes

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