Euro up before EU summit, stocks fall on China data

SINGAPORE (Reuters) - The euro climbed a third day on Thursday after news about a second Greece bailout made dealers trim positions ahead of a European summit, while Asian stocks and the Australian dollar fell after a China manufacturing gauge reflected contraction for the first time in a year.

In a potentially dangerous combination for investors, the flash Chinese PMI reading for July also reflected a jump in inflation, helping to push S&P 500 equity futures into negative territory and knock mainland Chinese stocks further below a two-month high hit on Monday.

Pending details of the deal between France and Germany that supposedly included European Central Bank President Jean-Claude Trichet, investors were cautious about pushing the euro much higher.

Deep questions remain about Europe, including whether the second bailout of Greece will address contagion in other fiscally weak countries such as Portugal and Ireland or even Spain and Italy, whose bond markets have been savaged in July.

"Judging from the current crop of headlines, the most negative outcome for the euro would be a debt rollover without additional measures," Todd Elmer, currency strategist with Citi, said in a note.

"Of course, the euro already appreciating ahead of the meeting and moves in other asset classes somewhat more modest than the FX price action would suggest it is far from clear that currency gains could be sustained beyond the short-term."

The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> was down 0.2 percent, with the consumer discretionary sector taking the biggest hit. The index was still up some 3 percent since hitting a 3-month low on June 20.

Hong Kong's Hang Seng index was down 0.3 percent <.HSI>, weighed by Chinese bank stocks and a 3.3 percent drop in CNOOC Ltd <0883.HK> in the wake of the offshore oil producer's acquisition of a Canadian oil sands firm valued at $2.1 billion.

Japan's Nikkei share average <.N225> slipped 0.1 percent, with weakness in tech-related stocks slightly outweighing some strength in retailers.

The tech sector was getting whipsawed after weak results from Yahoo Inc , a lowered PC market forecast from Intel , and after Microsoft Corp stock dropped 1.7 percent ahead of its quarterly report on Thursday.

Apple's blockbuster results had given the sector a shove higher on Wednesday.

The euro was up 0.2 percent around $1.4250 after hitting a session high near $1.4275 on news of an accord between France and Germany over Greece.

The euro is facing tough technical resistance in the $1.4280 to $1.4300 area, where among other things the 100-day and 55-day moving averages converge.

With uncertainties still high about negotiations over the U.S. debt ceiling, traders may focus on further covering their bets against the euro versus non-dollar currencies. [ID:nN1E76I25I] Indeed, the common currency was already up 0.5 percent against the Swiss franc, at 1.1715 francs.

The Australian dollar was down 0.3 percent at $1.0720, with a break below $1.0700 possibly paving the way for a test of support around $1.0670.

The Chinese economic news pushed gold prices back above $1,600 an ounce, within sight of the record high of $1.609.51 reached on July 19. The yellow metal has risen 6.6 percent in July.

(Editing by Richard Borsuk)

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