BEIJING (Reuters) -China's manufacturing activity contracted for a fifth straight month in August, but at a slower than expected pace, an official factory survey showed on Thursday, maintaining pressure on Beijing to step up policy support for the stuttering economy.

The official purchasing managers' index (PMI) rose to 49.7 from 49.3 in July, according to the National Bureau of Statistics, staying below the 50-point level demarcating contraction from expansion. The reading was above a forecast of 49.4.

The Chinese economy risks missing Beijing's annual growth target of around 5% as it contends with a worsening property slump, weak consumer spending and tumbling credit growth, leading major banks to downgrade their growth forecasts for the year.

Beijing on Sunday announced halving the stamp duty on stock trades, the first cut to the tax since 2008, to boost investor sentiment.

Detailed rules were also unveiled on Friday to ease first-home mortgages. And some Chinese state-owned banks will soon lower interest rates on existing mortgages.

The fresh moves came after a raft of measures aimed at reviving big-ticket purchases, notably of new-energy vehicles. Still, many analysts see only a slim chance for any drastic stimulus amid concerns over mounting debt risks.

The official non-manufacturing PMI fell to 51.0 from 51.5 in July, while the composite PMI, including both manufacturing and non-manufacturing activity, rose to 52.3 from 51.1.

LONDON (Reuters) - British companies are their most confident since before Russia's invasion of Ukraine, according to a survey that also showed they planned to keep on raising prices and staff pay, adding to worries for the Bank of England about high inflation.

Contrasting with signs of an economic slowdown in other recent surveys, the Lloyds (LON:LLOY) Bank Business Barometer measure of confidence jumped by 10 points in August to 41%, its highest since February 2022.

"The bounce in economic optimism this month is the stand-out point," Hann-Ju Ho, senior economist at Lloyds Bank, said.

"Our analysis shows that businesses felt relief that interest rates may be reaching their peak, alongside hopes that measures to tackle inflation are having an impact."

The BoE raised rates for the 14th time in a row this month to counter an inflation rate running at almost 7%. But the quarter-percentage-point increase was smaller than June's 50-basis-point hike.

Investors mostly expect the Bank Rate to peak this year at 5.75%, up from its current level of 5.25%.

Britain has avoided a widely forecast recession so far this year but worries about an economic slowdown grew last week when a measure of business activity in August fell to its lowest since January 2021.

Thursday's survey showed firms' hiring intentions were the strongest in 15 months and the share of businesses planning to increase staff wages was the highest since Lloyds began asking about pay in 2018, with 30% of firms predicting a 3% pay rise.

Other surveys have shown pressure on firms to raise pay by more although human resources data company XpertHR last week reported the first slowdown this year in the pace of wage deals during the three months to July.

A net balance of 56% of firms intended to increase their prices, Lloyds said.

Smaller firms were more upbeat than bigger ones which had more exposure to the global economy and manufacturing firms were more downbeat than other companies, it said.

By Marco Aquino

LIMA (Reuters) - Peru lowered its economic growth forecasts for 2023 and 2024 on Tuesday amid poor weather, lower private investment in mining, and anti-government protests earlier this year.

The South American country's economy is expected to grow 1.1% this year, the economy ministry said in Peru's official gazette. That is down from a previous estimate of 2.5%, after data showed the economy shrank in the first half of 2023.

That would mark the slowest annual growth since 2009, excluding coronavirus-dampened 2020. The Peruvian Fiscal Council warned the forecast could still be too optimistic and could see further adjustments.

Next year, Peru's economy is expected to grow 3.0%, the ministry added, down from a previous estimate of 3.4%.

The world's second-largest copper producer has taken a hit as prices of the metal fell from an average of $400/lb last year to an estimated $380/lb this year and $360/lb next year.

Though metals mining and production is expected to grow 7% this year, private investment - largely in mining - is expected to drop 4.5%, alongside a slowdown in Peru's construction and manufacturing sectors.

Peru's fishing industry is also expected to be seriously hit by warmer seas due to the El Nino climate phenomenon, the ministry said. This has devastated production of the anchovy-based fertilizer fishmeal in which Peru leads globally.

Warmer seas are also expected to bring heavy rains along the Pacific Ocean coastline, likely damaging agriculture and key infrastructure such as roads. That makes El Nino the largest immediate threat to Peru's economy, the government said.

The ministry also pegged Peru's estimated fiscal deficit for this year at 2.4% of gross domestic product (GDP), up from the 1.7% of GDP recorded last year.

Meanwhile, Peru's estimated current account deficit was lowered to 1.6% of GDP, down from the 2.1% of GDP previously expected.

Still, markets appeared largely unfazed. Peruvian stocks in dollars were up 1.16% in early afternoon trading.

Finance Minister Alex Contreras, in a press conference on Tuesday, vowed that the government was working "intensely" to reverse the trend, and that inflation was slowing, with the annual rate set to dip to 4% by year's end.

He added that companies from multiple countries including the U.S had shown interest in developing petrochemicals in Peru.

The government has repeatedly denied the country entered a recession after the two consecutive quarterly contractions this year, citing methodological nuances.

By Yoruk Bahceli

(Reuters) - A big selloff that pushed U.S. borrowing costs to 15-year highs left euro zone bonds relatively unscathed in August, reflecting investor bets the bloc's economic growth and funding needs will increasingly lag those in the United States.

A resilient U.S. economy and rising borrowing needs pushed Treasury yields to their highest in over 15 years in August amid growing expectations that interest rates would stay higher for longer. Furthermore, U.S. inflation-adjusted borrowing costs rose above 2% for the first time since 2009, hurting stocks and pushing up borrowing costs globally.

European bonds, however, were less affected and it is not hard to see why.

While the U.S. economy, which grew 2.4% last quarter, has delivered a string of positive surprises, sharp contractions in business activity last week pointed to deepening economic pain in Europe.

"In the U.S., we went from expectation of a recession at the end of the year to recent solid economic data," said Mauro Valle, head of fixed income at Generali (BIT:GASI) Investment Partners.

"In Europe, we went from a positive economic trend a couple of months ago to more negative data," Valle said.

Bond markets reflect the two regions' diverging economic fortunes and rate expectations.

Benchmark 10-year Treasury yields, though down from their highs at month-end, were still set to end August with a rise of 17 basis points, while 10-year yields have risen just 4 basis points in Germany, the euro zone's benchmark, and by 11 bps in Britain.

Last week, U.S. 10-year Treasury yields touched their highest relative to Germany's since December.

For rate-sensitive short-dated German bond yields yields are even down 17 bps in August as weak data has raised expectations of a European Central Bank rate hike pause in September. In contrast, equivalent U.S. yields are flat for the month.

"This is not a global selloff. It's a U.S.-centric selloff," said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, which manages $745 billion in assets. He said there was more focus now on individual economies and, for example, his firm favoured British government bonds.

DEFICIT WATCH

Crucially, borrowing needs are also diverging across the Atlantic, with U.S. fiscal outlook deteriorating and euro zone's improving.

    "Europe is not paying lip service to fiscal consolidation, it is doing fiscal consolidation," said Barclays's head of euro rates strategy Rohan Khanna.

Fitch Ratings, which stripped the U.S. of its prized AAA credit rating in early August citing fiscal pressures, expects the U.S. government deficit to rise to 6.3% of gross domestic product this year, and 6.6% next year, from 3.7% in 2022, and widen further thereafter.

In Germany, Fitch forecasts the deficit will rise to 3.1% of GDP this year from 2.6% last year, but narrow to around 1% in the longer term. Similarly it expects deficits to narrow in highly-indebted Italy and in France.

Mondher Bettaieb-Loriet, a fund manager at Vontel Asset Management, said lower debt issuance in Europe compared with the United States, would favour European government bonds over Treasuries.

Bigger fiscal deficits lead to more borrowing, resulting in higher interest rates and lower bond prices.

SPILLOVER

BofA, Goldman Sachs and Barclays expect Treasury yields to end the year slightly below current levels. Yet last week's Jackson Hole central banking symposium signalled growing concern that a strong U.S. economy could force the Federal Reserve to raise rates further than markets now expect, which would drive up borrowing costs elsewhere.

Barclays's Khanna estimates German bond yields would have been 50-60 bps lower had they only been driven by domestic factors.

For now, such effect should be welcome by the ECB, helping it fight inflation by tightening monetary conditions, said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.

The spillover from higher Treasury yields is more challenging elsewhere.

In Japan, rising U.S. yields have pushed the yen to its lowest in almost 10 months and Japanese bond yields touched 10-year highs, triggering a recent Bank of Japan intervention.

"The higher U.S. yields push the yen weaker, which makes it difficult for the BOJ to contain yields through bond buying," said Ataru Okumura, senior rates strategist at SMBC Nikko Securities.

By Ankur Banerjee

SINGAPORE (Reuters) - Asian equities rose on Wednesday and the dollar wobbled as weak U.S. labour data bolstered bets that the Federal Reserve was likely done with its interest rate hikes, while beaten-down China stocks rose for a third straight day.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.86% to a two-week top and is on a three-day winning streak. The index though is down 6% in August and set for its worst monthly performance since February.

Japan's Nikkei was up 0.5%, while the Australia's S&P/ASX 200 index rose 0.64%.

China shares have gained this week following the announcement of measures to lift investor confidence, including halving the stock trading stamp duty, loosening margin loan rules, and putting the brakes on new listings.

In early trading, the blue-chip CSI 300 Index was 0.3% higher, while Hong Kong's Hang Seng Index rose 0.75%.

Analysts though see a need for more action from Chinese authorities to sustain the rally. "It will take more resolute policy measures and a sustainable recovery in earnings in order for the rally to last," Carlos Casanova, senior economist for Asia at UBP, said.  

Investors' focus will be on PMI data from China later this week that will highlight the state of the economy.

Overnight, Wall Street ended sharply higher, while Treasury yields slid to three-week lows after data showed U.S. job openings dropped to the lowest level in nearly 2-1/2 years in July, signalling easing labour market pressures. [.N]

"'Bad news is good news,' as the data supported bets for a sooner end of the Fed's hiking cycle despite the recent hawkish rhetoric of Fed Chair Powell," Tina Teng, markets analyst at CMC Markets (LON:CMCX), said in a note.

With the Fed highlighting that the interest rate path will be heavily dependent on data, traders are tweaking their bets based on the latest indicators.

Markets are pricing in an 89% chance of the Fed standing pat at its meeting next month, the CME FedWatch tool showed, and are now pricing in a 50% chance of another pause at the November meeting compared with a 38% chance a day earlier.

A much clearer economic picture will likely be revealed later in the week when U.S. payrolls and personal consumption expenditure reports are due.

U.S. Treasury yields were stable in Asian hours. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 1.3 basis points at 4.903%, easing away from the three week low of 4.871% it touched on Tuesday. [US/]

The drop in yields put pressure on a buoyant dollar. [FRX/] Against a basket of currencies, the dollar inched up 0.029% to 103.58 after slipping nearly 0.4% on Tuesday.

The yen weakened 0.15% to 146.09 per dollar and remained at levels that led to intervention in the currency market last year by Japanese authorities.

The Australian dollar fell 0.32% to $0.646 after data showed Australian consumer price inflation slowed to a 17-month low in July, signalling that interest rates might not have to rise again.

U.S. crude rose 0.32% to $81.42 per barrel and Brent was at $85.69, up 0.23%. Both benchmarks rallied more than a dollar a barrel on Tuesday on a soft dollar. [O/R]

Traders will be closely watching cocoa prices on Wednesday after the London cocoa futures on ICE rose to a 46-year high on Tuesday, buoyed by tightening supplies.

Top cryptocurrency bitcoin eased a bit in early Asian hours to trade at $27,554 after rising 7% on Tuesday. A federal appeals court ruled on Tuesday that the U.S. securities regulator was wrong to reject an application from Grayscale Investments to create a spot bitcoin exchange-traded fund.

NEW YORK/LONDON (Reuters) - Bitcoin rose to two-week highs on Tuesday after a U.S. court ruled that the Securities and Exchange Commission (SEC) should not have rejected digital asset manager Grayscale's application for a spot bitcoin exchange traded fund.

It was last up nearly 7% at $27,910

The SEC's denial of Grayscale's proposal was arbitrary and capricious because the regulator failed to explain the different treatment between bitcoin futures ETFs and spot bitcoin ETFs, said a panel of judges in the District of Columbia Court of Appeals in Washington.

"Despite the inevitable SEC appeal, to our mind there is no doubt now, spot BTC ETFs are coming to the US. We don't believe the SEC will act as kingmaker and the most likely outcome is a block approval of applications that meet requirements, probably in Q1 2024," said Tim Bevan, chief executive officer at ETC Group, crypto exchange-traded product provider.

He also expects pent up U.S. demand to positively impact bitcoin prices and help global acknowledgement of crypto as a new asset class.

The regulator did not immediately respond to requests for comment on Tuesday.

Both parties have 45 days to appeal the ruling, in which case it would either go to the U.S. Supreme Court or an en banc panel review. It is unclear if the SEC will appeal.

The SEC last year rejected Grayscale's application for a spot bitcoin ETF, arguing the proposal did not meet anti-fraud and investor protection standards. It cited the same reason in denying dozens of other applications for similar products, including those from Fidelity and VanEck.

Ether, the second largest cryptocurrency in terms of market capitalization, was also up, rising about 5% to $1,730.50.. Earlier, it hit a two-week peak as well of $1,735.60.

Bitcoin and ether have been in a recent slump, caught up in a broad risk-off move due in part to expectations that the Federal Reserve will keep interest rates higher for longer amid persistently elevated inflation.

So far this month and despite Tuesday's sharp gains, both bitcoin and ether were down 6% and nearly 8%, respectively.

By David Milliken

LONDON (Reuters) - The number of house purchases in Britain this year is on course to drop by 21% to its lowest since 2012 as a result of rising borrowing costs, property website Zoopla forecast on Wednesday.

Zoopla forecast there would be 1.0 million residential housing sales this year, down from 1.26 million last year and a 14-year high of 1.48 million in 2021, when ultra-low interest rates and pandemic tax incentives boosted demand.

"While UK house prices are 0.1% higher over the year, it is the number of sales that have been hit hardest by higher borrowing costs, especially amongst mortgage-reliant buyers," Zoopla's executive director, Richard Donnell, said.

Zoopla forecast that house purchases funded by mortgages would drop 28% this year, while cash buyers would fall just 1% and account for more than a third of sales.

The most recent official data showed that there were 22% fewer house purchases in the three months to the end of June than a year earlier.

Average house prices in May were down 2% from their peak last September, but were still more than 20% higher than before the start of the COVID-19 pandemic, when cheap finance and demand for more spacious homes drove a surge in prices in many Western countries.

Since December 2021, the BoE has raised interest rates 14 times to 5.25% - their highest since 2008 - from 0.1% in a bid to tackle rampant inflation, and markets expect two further rate rises to 5.75% this year.

The BoE is due to release July mortgage lending data at 0830 GMT.

Zoopla provides property valuations and also advertises more than 1 million properties for sale or to rent.

TOKYO (Reuters) - Japan threatened on Tuesday to take China to the World Trade Organization to seek a reversal of Beijing's ban on all of its seafood imports after the release of treated radioactive water from the stricken Fukushima Daiichi nuclear power plant.

Japan's foreign minister Yoshimasa Hayashi told reporters that Japan will take "necessary action (on China's aquatic product ban) under various routes including the WTO framework".

Filing a WTO complaint might become an option if protesting to China through diplomatic routes is ineffective, economic security minister Sanae Takaichi said separately.

The comments came as Japanese businesses and public facilities continued to receive harassment calls from phone numbers with the +86 Chinese country code, with many reporting callers complaining of the Fukushima water release.

Japan's National Policy Agency has received 225 reports of harassment calls to date, Jiji news reported, and the government said it was seeking help from telecommunications companies to block the calls.

An increasing number of landline phone users are requesting to block foreign numbers, said a spokesperson at NTT Communications, a Nippon Telegraph and Telephone (OTC:NPPXF) unit. NTT and other phone companies including KDDI (OTC:KDDIF) and SoftBank (TYO:9984) Corp are discussing measures following the government’s request.

"It is extremely regrettable and concerning about the large number of harassment calls that have likely come from China," Trade minister Yasutoshi Nishimura said during a news conference. He said that according to the people of Fukushima some calls were even going to hospitals, .

"Human life is at stake now. Please stop the calls immediately,” Nishimura said.

The minister said the government is gathering information on the reports of movements to boycott Japanese products in China and would work with business leaders to address the situation.

By Jihoon Lee

SEOUL (Reuters) - South Korea's government plans to raise budget spending to nearly $497 billion for 2024, but the proposed increase is the smallest in two decades as authorities prioritise fiscal discipline amid weakening tax revenue due to slower economic growth.

In its annual spending plan released on Tuesday, the finance ministry set total government expenditure for 2024 at 656.9 trillion won ($496.70 billion), up 2.8% from 2023.

That is smaller than this year's 5.2% increase and the smallest-ever boost since fiscal statistics were last revised at the beginning of 2005, according to the ministry, excluding supplementary budgets.

The conservative Yoon Suk Yeol administration has prioritised improving the government's fiscal position since its term began in May 2022, refraining from splurging taxpayer money to boost growth and emphasising the role of the private sector.

It partly reflects weak tax revenue, estimated to drop by a record 8.3% in 2024 and bring down next year's total government income by 2.2% to 612.1 trillion won, amid slow economic growth and as the government seeks further tax cuts, especially for companies.

The government is forecasting economic growth to weaken to a three-year low of 1.4% this year, after expanding 2.6% in 2022 and 4.3% in 2021. It expects the economy to grow 2.4% in 2024.

South Korea's fiscal deficit will widen to 3.9% of GDP next year, from an estimated 2.6% this year, the ministry said, adding that it will bring back the ratio below 3% from 2025. The debt-to-GDP ratio will rise to 51.0% from 50.4%.

"It was a difficult decision the government made to hold onto sound financing," Finance Minister Choo Kyung-ho said.

About 23 trillion won worth of projects deemed inefficient will be scrapped or scaled down, with more spending on social welfare, childbirth support, investment in key industries, public safety and disaster prevention, among others.

Big spending increases include social welfare, up by 7.5% to 242.9 trillion won, defence up 4.5% to 59.6 trillion won and corporate support by 4.9% to 27.3 trillion won.

The government will issue 158.8 trillion won of treasury bonds in 2024, down from a total of 167.8 trillion won planned for this year. The net increase in treasury bonds is projected at 50.3 trillion won.

It will issue a maximum $1.3 billion worth of foreign exchange stabilisation bonds, compared with $2.7 billion set for this year, and 18 trillion won worth of the bonds in local currency, its first issuance of the kind since 2003, to lower the borrowing cost.

The budget plan will be submitted to the national assembly on Friday, Sept. 1.

($1 = 1,322.5400 won)

(This story has been corrected to fix the year to 2003, from 2013, in paragraph 12)

BEIJING (Reuters) - China will extend preferential tax policies for foreign nationals working in the country through to the end of 2027, the finance ministry said on Tuesday, in a boon to foreign firms struggling to attract talent post-COVID.

The government proposed scrapping the provision of non-taxable allowances for foreign workers in 2022, but decided to extend the scheme on a review basis until the end of this year.

Foreign chambers of commerce and business organisations in China had been seeking urgent clarification on whether the government would further extend the policy that enables expatriates to benefit from taxable deductions on house rental, children's education, language training, and other costs.

"We believe that this will help to curtail further outflows of qualified international talent, while also providing multinational companies with clarity on their talent strategy regarding the deployment of expatriate staff and structuring of their packages," said Kiran Patel, senior director at the China-Britain Business Council.

"This announcement to extend the existing individual income tax regime is a genuine statement of commitment from the Chinese government to the multinational companies operating here."

As China's economy slows, authorities have struggled to revive foreign investment with global firms unimpressed by new incentives they say fall far short of sweeteners once used to attract overseas money.