* Yellen speech to Congress to gives clues to rate hike
* Bank of Canada seen on hold at 1 pct by economists
* China to show 7.4 pct GDP growth for 2nd qtr, tweak policy
* Contagion from Portugal another worry for ECB's Draghi
By Robin Emmott
BRUSSELS, July 13 Investors shift focus this
coming week from trouble spots such as Portugal's biggest listed
bank to a marathon testimony by the U.S. Fed chair that could
help chart a global path towards post-crisis "normalisation".
Concerns about losses associated with the founding family of
Banco Espirito Santo had threatened to rattle euro zone
markets, but by Friday traders had decided that BES was unlikely
to disrupt Portugal's financial system or revive broader worries
about the bloc's weaker economies.
In any case, Janet Yellen's two-day appearance in the U.S.
Congress from Tuesday will dominate global markets, which want
above all to know how long the Federal Reserve will leave
interest rates low after an unprecedented period of cheap money
since the financial crisis.
While October is likely to mark the end of the central
bank's money printing, investors are looking for hints of an
interest rate hike early next year, which would signal a return
to normality after the Great Recession and its aftermath.
But much depends on the health of the U.S. economy and its
ability to bounce back from a disastrous first quarter.
The number of Americans filing new claims for unemployment
benefits for the week ended July 5 fell to one of its lowest
levels since before the 2007-09 recession, more evidence of a
strengthening labour market.
The consensus has been for a rate hike in late 2015, but
many economists are bringing forward their forecasts, with
European-based banks including BNP Paribas expecting the Fed to
hike near the middle of next year.
Others expect U.S. interest rates to rise sooner.
"There's a pessimistic view of the economy among some in the
market, but a stronger jobs picture and rising inflation will
prompt the Fed to act," said Julian Jessop, chief economist at
Capital Economics in London, who sees a rate rise in March.
Worries about soft growth will keep the Bank of Canada from
hiking interest rates until late next year, economists say, but
rising prices are expected to temper expressions of concern
about low inflation in its policy statement on Wednesday.
Most investors expect the Bank of England to be the first
major central bank to raise rates since 2007 as the economy
recovers from a long period of stagnation.
The British central bank held rates at record lows last week
but is expected to raise them late this year or in 2015.
Investors will hear from Governor Mark Carney and his deputy
Andrew Bailey on Tuesday at the British parliament when they
face the Treasury Committee, while jobs data for June due out on
Wednesday will give the market crucial signals.
In China, the success of authorities' efforts to keep the
economy growing at around 7.5 percent will be tested by the
second quarter gross domestic product (GDP) reading due on
Wednesday, with other data including retail sales for June.
Economists polled by Reuters expect the first quarter's 7.4
percent GDP reading to be repeated in the second. Premier Li
Keqiang said last week the Chinese economy still faced risks and
he will further fine-tune policies.
June new house price data will also give a sense of how far
China's housing slowdown is dragging on growth.
NO 'MATERIAL STRESS'
The European Central Bank's President Mario Draghi faces a
different challenge in trying to revive the euro zone economy.
While losses on loans will not put Banco Espirito Santo at risk
of running short of capital, ripples of concern forced Spain's
Banco Popular to call off a bond issue and Greece
managed to place just half of its debt issue.
Portugal's government assured investors that the country's
financial system was sound, steadying markets, although
questions remain about the Espirito Santo business empire.
"If this uncertainty about BES continues, then peripheral
debt looks likely to underperform and more investors will look
to reduce their exposure," said Peter Chatwell, an interest
rates strategist at Credit Agricole CIB, referring to countries
such as Italy, Spain and Ireland.
"But I don't think is going to put material stress ... on
other peripheral countries," he said.
Draghi will speak at the European Parliament on Monday
evening in Strasbourg and will face questions on issues such as
the slowdown in the German economy.
Investors will look to the July ZEW survey on economic
sentiment on Tuesday to see how great the impact of the crisis
in Ukraine has been on confidence in Germany after the mood
deteriorated following a strong start to the year.
"The last few weeks, with the numbers out of Germany, have
made me more pessimistic," said Carsten Brzeski at ING. "The
picture across the euro zone countries is not encouraging with
France in a mess and Spain still struggling with unemployment."
(Writing by Robin Emmott; Editing by Ruth Pitchford)