* Euro inches up on higher stocks, European PMIs
* Dollar index flat at 80.10 <.DXY>
* Markets await U.S. payrolls, ECB on Thursday
(Adds quotes, updates prices)
By Tamawa Desai
LONDON, July 1 (Reuters) - The euro inched up on Wednesday,
supported by higher European shares and improved readings for
manufacturing activity in the region, but gains were limited as
investors awaited U.S. employment figures the following day.
Improvements in the purchasing managers' index helped keep
the euro near the day's high against the dollar, but remained
below a three-week peak touched the previous day.
"People are staying on the sidelines and they remain quite
cautious," said Geoffrey Yu, currency strategist at UBS.
By 1104 GMT, the euro <EUR=> was up 0.2 percent on the day
at $1.4061, boosted by a 1.2 percent rise in European shares
<>. On Tuesday, it rose to $1.4152, its highest since June
11, according to Reuters data.
Some traders said movements in euro/dollar were limited
ahead of options, with strike prices of $1.40 and $1.41, set to
expire later in the day.
Data on Wednesday showed euro zone manufacturing PMI rose to
42.6 in June from 40.7 in May, largely in line with expectations
[]. A reading below 50 indicates contraction.
"The fact that we didn't get anything unpleasant in the PMIs
like downward revisions, is helping the euro, said Daragh Maher,
senior currency strategist at Calyon in London.
Sweden's PMI rose to 50.5, more than expectations for 45.0,
and showing growth for the first time in a year.
Activity was also muted ahead of the European Central Bank's
policy meeting on Thursday. It is expected to leave rates
unchanged and give more details on its asset buying programme.
PROTRACTED RECOVERY?
The dollar index <.DXY> which tracks its performance against
a basket of currencies, was flat at 80.10, paring early losses.
Disappointing U.S. consumer confidence data on Tuesday
dented optimism about the economic outlook, raising views that
any rebound from the global recession may be protracted.
"With the market still believing the United States will be
the first to recover within the major economies, if a recovery
cannot be confirmed there it would be hard for other economies
to begin anticipating anything similar," UBS' Yu said.
"This would generally put risk appetite on the defensive and
help the dollar as a result."
Also clouding the economic picture was data showing the UK
economy shrank at its fastest pace in more than 50 years in the
first quarter of this year.
Economists expect the U.S. economy to have shed 363,000 jobs
in June after losing 345,000 in May. [] The data is due on
Thursday as U.S. markets will be closed on Friday to observe the
Independence Day holiday.
The ADP Employer Services report due out at 1215 GMT is
expected to show a 393,000 drop in private-sector jobs in June.
The ISM June manufacturing index due at 1400 GMT is forecast
to rise to 44.5 from 42.8 in May. Pending home sales for May are
also due at 1400 GMT.
Meanwhile, the yen struggled broadly as Japanese
institutional investors sold the currency at the start of the
new quarter, along with a smaller-than-forecast improvement in
the Bank of Japan's June tankan corporate survey [].
The dollar <JPY=> rose 0.6 percent to 96.93 yen while the
euro gained 0.7 percent to 136.25 yen <EURJPY=>.
(Additional reporting by Naomi Tajitsu; Editing by Victoria
Main)
