GLOBAL MARKETS-Diverging growth outlook drives shares, dollar firm
* World shares hold gains on improving U.S., Japanese factory outlook
* Emerging markets and Europe stocks pull back on weaker prospects
* Dollar edges higher vs yen, near 4-week high
* Gold, oil extend modest recoveries
LONDON, July 2 (Reuters) - The global economy's diverging fortunes knocked emerging markets from a two-week high and sapped recent gains in European shares, while Japan's Nikkei index hit its best level in five weeks on the yen's weakness. World shares in general were little changed on Tuesday with most investors content to wait for the release of U.S. jobs data later in the week, which will shed light on when the Federal Reserve may begin cutting back it massive stimulus programme. "It's really all about the data later this week, especially the U.S. employment report, where the market be looking for further clues on Fed tapering," said Michael Hewson, senior market analyst at CMC Markets. However, the latest worldwide surveys on factory activity in June, showing the U.S., Japan and the UK on track for modest growth while the euro zone was stagnating and China slowing down, had causing slight changes in investor positioning. In Europe, the broad FTSE Eurofirst 300 index fell 0.75 percent by mid-morning after a strong start to the new quarter saw a gain 0.9 percent on Monday. The index remains some 8 percent off its 2013 peak, which marked a five-year high. Data showing a drop in new car sales in Germany, Europe's largest auto market added to worries about the health of the region, though the recent factory surveys have pointed to a stabilisation in the contraction across the euro area. The stable outlook is expected to encourage the European Central Bank to leave its rates unchanged at a policy meeting on Thursday, further underlining the differences between the region's fortunes and that of the United States.
ASIA RISES Earlier Asian markets were lifted by strong gains in Japan and a rise in Australian shares after its central bank left interest rates at a record low and suggested there was room for further easing. Japan's Nikkei index ultimately closed 1.8 percent higher to finish above 14,000 for the first time in five weeks as blue-chip exporters gained on a weaker yen. Tokyo shares were also supported by a weaker yen as Monday's encouraging U.S. manufacturing data lifted the dollar to a four-week high against it Japanese counterpart at 99.91 yen , and not far from the key 100 yen level. The euro meanwhile was steady at $1.3052, off last week's trough of $1.29845, its lowest since early June. In mixed fixed income markets, Spanish and Italian debt yields fell while Portuguese ones rose after the country's finance minister resigned . Portugal's Finance Minister Vitor Gaspar, the architect of its austerity drive under an EU/IMF bailout, resigned on Monday in a potential blow to his country's planned exit from an EU-IMF rescue programme. Greek debt yields were also sharply higher after a Reuters report, quoting top euro zone officials, revealed Greece has only three days to reassure creditors it can meet the conditions of its bailout in order to get the next tranche of aid.
Yields on 10-year Greek bonds were up 20 basis points to 11.24 percent as any failure to secure the funds would threaten the repayment of 2.2 billion euros of bonds due in August, heightening fears of a full blown debt crisis. However German Bund futures were only slightly higher at 141.84, as most investors remained reluctant to make big bets before Thursday's European Central Bank meeting. Among commodities Brent crude rose above $103 a barrel on Tuesday, extending gains to a second day due to concerns about supply disruptions in the Middle East and Africa. Meanwhile gold stretched its gains into a third straight session To reach $1,267.20 an ounce as the metal recovered from its plunge to three-year lows in the previous week.
(Editing by John Stonestreet, Ron Askew)