* Upbeat Chinese data boosts global recovery hopes
* European stocks slip; oil at 7-week high
* Dollar index at 8-month low as ISM seen weak
By Emelia Sithole-Matarise
LONDON, Oct 1 (Reuters) - The dollar fell to an 8-month low
against a basket of currencies on Friday as traders bet a U.S.
manufacturing index later in the session would be weak, while
world stocks were mostly firm due to upbeat Chinese data.
Many in the market are expecting the ISM nationwide
manufacturing index to fall quite substantially after a surprise
increase last month, which could strengthen the case for the
Federal Reserve to pump more money into a struggling economy.
China's official purchasing managers' index by contrast
eased some concerns about the recovery there and propped up
demand for equities and oil.
The dollar index fell as low as 78.147 <.DXY>, its weakest
since January, on the view that more asset sales by the Fed --
known as "quantitative easing" -- would lead to more losses for
the greenback. It was last 0.55 percent down at 78.298, having
fallen more than 5 percent in September, its worst monthly
performance since May 2009.
"The market clearly anticipates more quantitative easing
from the Fed, just look at the dollar," said Philippe De
Vandiere, analyst at IG Markets in Paris.
"But the problem is that consumer spending is not
rebounding, companies are maintaining their margins by cutting
costs and looking for external growth. So there's not much to
support stocks these days."
The dollar's losses were heaviest against the euro, which
climbed as much as 0.8 percent to $1.3763 according to Reuters
data, its highest since mid-March and breaking through
resistance around $1.3692, a peak hit in April.
CHINA PLEASES
Word stocks as measured by MSCI <.MIWD00000PUS> were up 0.3
percent after Japan's Nikkei <> average closed up 0.4
percent after data showed China's manufacturing sector gathered
momentum last month, providing further evidence that the economy
is pulling out of a second-quarter slowdown. []
The pan-European FTSEurofirst 300 index <> reversed
earlier gains to stand 0.25 percent down on the day on
retreating banking stocks.
U.S. shares were set to open higher, with the S&P 500 index
futures <SPc1> rising 0.5 percent. The upbeat tone in equities
took the shine off fixed income, with U.S. and German government
bond prices slipping, driving their yields higher.
"The Chinese data helped but the underlying story for the
last month has been a rates-driven rally. Lower government bond
yields across the board make riskier assets more attractive,"
said Adrian Schmidt, a currency strategists at Lloyds in London.
The yield on German bonds -- the euro zone debt benchmark --
rose three bps on the day to 2.306 percent while the 10-year
U.S. T-note yield was up about two bps at 2.529 percent.
The benchmark 10-year T-note yield has fallen over 20 basis
points over the past month on bets that the Federal Reserve
could buy up to $1 trillion in Treasuries by year-end in an
effort to energise private spending and investments, which have
been stagnant in the current U.S. recovery.
Oil meanwhile rose to a seven-week high, back above $80 a
barrel after the Chinese numbers raised hopes of a recovery in
demand in one of the world's largest consumers. Chinese markets
were closed for a public holiday.
(Additional reporting by Blaise Robinson in Paris; editing by
Patrick Graham)
