GLOBAL MARKETS-Europe stuck on the ground as China markets jump

* European shares stutter as COVID restrictions weigh
* China blue chips gain over 2%, PBOC adds more loans
* Nikkei slips as Japan reports record drop in GDP
* Rise in long-term U.S. yields offers some support to
dollar
* Gold firms after suffering worst week since March
* Graphic: 2020 asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

By Marc Jones and Wayne Cole
LONDON/SYDNEY, Aug 17 (Reuters) - Shares crept back toward
recent peaks on Monday as Chinese markets swung higher, while
investors waited to see if the recent sell-off in longer-dated
U.S. Treasuries would be extended and perhaps take some pressure
off the dollar.
Europe was warming up to the new week slowly but was steady
enough to keep MSCI's broadest index of world shares
.MIAPJ0000PUS inching closer to February's record top of
581.02. .EU
Chinese blue chips .CSI300 led the way with gains of
2.35%, as the country's central bank provided more medium term
loans to the financial system. Beijing had also granted a patent for CanSino Biologics
6185.HK COVID-19 vaccine candidate Ad5-nCOV But Tokyo's Nikkei .N225 fell 0.6% as Japan became the
latest country to confirm its biggest economic contraction on
record. A retightening of COVID-19 measures in Italy was
contributing to Europe's groggy start, although Wall Street S&P
500 futures remained a solid 0.3% higher ESc1 and just below
the record close of 3,386.15. .N
Rabobank strategist Bas Van Geffen said the past few months
had seen optimism build about a strong economic bounce-back, but
steps like COVID measures being reimposed were an indication of
the challenges.
"We have already cautioned that this is not going to be a V-
shaped recovery ... and perhaps this is a sort of a sign to the
markets that it is not going to be (a V-shaped bounce)".
The U.S. second-quarter earnings season wraps up with major
retailers reporting this week, including Walmart Inc WMT.N ,
Home Depot Inc HD.N and Kohls Corp KSS.N .
Sino-U.S. relations remain a sticking point with U.S.
President Donald Trump on Saturday saying he could exert
pressure on more Chinese companies such as technology giant
Alibaba BABA.N after he moved to ban TikTok. U.S. crude oil shipments to China will rise sharply in
coming weeks, as the world's two top economies gear up to review
their January deal after a prolonged trade war. News that the scheduled review of the U.S.-China Phase-One
trade deal over the weekend had been postponed indefinitely
didn't elicit much of a reaction. THE FED
The highlight of the economic calendar will be the release
of the minutes from the U.S. Federal Reserve's last policy
meeting.
"Market participants will be looking for insight into the
details and exact timing of when the Fed's Monetary Policy
Review will be completed, and also for more clarity with respect
to the potential timing and structure of any changes to forward
guidance," noted analysts at NatWest Markets.
Speculation is rife the Fed will adapt an average inflation
target, which would seek to push inflation above 2% for some
time to make up for the years it has run below it.
That combined with massive new debt supply caused a sharp
increase in longer-term bond yields last week, with 30-year
yields US30YT=RR rising 21 basis points as the curve
steepened.
The lift in yields gave the dollar some respite after weeks
of losses. Against a basket of currencies the dollar was a
fraction lower at 93.016 =USD , still uncomfortably close to
the recent trough of 92.521.
The euro EUR= flattened out a little late last week,
having met resistance around the two-year peak of $1.1915. Yet
it still ended the week with a gain of 0.5% and was last holding
at $1.1830 as European yields drifted lower again. GVD/EUR
"Investors strategically long EUR/USD should stick to the
position," said CBA forex analyst Elias Haddad. "Greater
Eurozone fiscal solidarity, real two-year swap rate
differentials and relative central bank balance sheet trends
between the Eurozone and the U.S. suggest the fundamental
uptrend in EUR/USD is intact."
The single currency has also made a notable break higher on
the yen EURJPY= to reach ground not trodden since April 2019.
Indeed, the yen fell against most of its peers last week, with
the dollar steady at 106.45 yen JPY= on Monday.
In commodity markets, gold firmed to $1,943 an ounce XAU= ,
after the jump in bond yields saw it lose 4.5% last week in its
worst performance since March. GOL/
Oil prices edged ahead on hopes for Chinese demand and after
data showed crude oil, gasoline, and distillate inventories all
declined in the week-ending Aug. 7. O/R
Brent crude LCOc1 futures rose 33 cents to $45.13 a
barrel, while U.S. crude CLc1 gained 38 cent to $42.39.

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