* European stocks
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Jan 2 Euro zone stocks climbed to their
highest in over a year on Monday - the first trading day of 2017
for those markets that were open - after data showed
manufacturers in the currency bloc ramped up activity at the
fastest pace in over five years.
With all of Asia's major markets closed for the New Year
holiday - along with Britain and Switzerland in Europe - trade
was thin, which analysts said could cause some volatility. The
United States and Canada will also be closed.
The euro zone's blue-chip Euro STOXX 50 index rose
half a percent to its highest since December 2015 after the
purchasing managers' index (PMI) for factories in the currency
bloc came in at 54.9 - well above the 50 mark that separates
growth from contraction.
The euro, though, took no comfort from the figures, slipping
0.3 percent back below $1.05 after climbing to as high as
$1.07 during a flash surge in low trading volumes in Asia on
Analysts said that was mainly due to a resumption of an
up-trend in the greenback that saw it surge to 14-year highs in
December on the view the U.S. Federal Reserve will hike
rates as many as three times this year, and that Donald Trump's
administration will stoke growth and inflation with a programme
of fiscal expansion.
The dollar index - which measures the greenback against six
major rivals - climbed 0.4 percent.
"In the last days of 2016 we saw the dollar retreat
somewhat, and there might be some sense of a correction from
Europe this morning. I don't see any fundamental drivers for the
moves," said Commerzbank currency strategist Esther Reichelt, in
Italy's top share index hit its highest level since January
last year, outperforming other major European stock indexes,
with a rally in its banks and a strong manufacturing report
Italy's FTSE MIB index was up 1.3 percent by 1000
GMT after rising to its highest since January 15 of 2016.
Germany's DAX was up 0.9 percent at its highest in
nearly 17 months, while France's CAC was up 0.3 percent
after hitting a 13-month peak earlier in the day.
As European stocks climbed, a rally in risk appetite also
pushed down the yields on lower-rated government bonds in the
euro zone to multi-week lows. Italian, Spanish
and Portuguese 10-year bond yields
were down roughly 8 basis points each on the day.
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
A gun attack in Istanbul that killed 39 people was seen
having little impact on markets, with the Japanese yen -
traditionally used as a safe haven - falling 0.3 against the
dollar, close to an 11-month low.
Islamic State claimed responsibility on Monday for the New
Year's Day mass shooting, which was carried out by a lone gunman
in a packed nightclub in the Turkish city.
"After all the big political shocks last year and muted
market reaction, it is tempting to argue that the markets are
very resilient," said Finland-based Nordea chief market
strategist Jan Von Gerich.
"I would say this is too optimistic an assumption and I
think we will see more volatility this year."
The Turkish lira slipped 0.4 percent after the attack
to 3.5384 per dollar, close to a record low of 3.5840 lira
touched in December.
"The problem is that this once again stresses the increasing
instability and the security issues, and we're seeing tourist
numbers going down, which will have a lasting negative impact on
the Turkish economy...and that's Turkish lira-negative," said
Data released earlier in the day showed China's
manufacturing sector expanded for a fifth month in December,
though growth slowed a touch more than expected in a sign that
government measures to rein in soaring asset prices are starting
to have a knock-on effect on the broader economy.
The Chinese yuan suffered its biggest annual loss in more
than 20 years in 2016, with an almost 7 percent fall making it
the worst-performing currency in Asia.
Digital currency bitcoin started the year by
jumping above $1,000 for the first time since late 2013.
(Additional reporting by Dhara Ranasinghe and Atul Prakash in
London; Editing by Peter Graff)