GLOBAL MARKETS-Europe waits for ECB cut after U.S.-driven bond rally

By Marc Jones

LONDON, June 5 (Reuters) - European markets made a steady start on Thursday ahead of an expected ECB interest rate cut, and after weak U.S. economic numbers had triggered a sharp government bond rally and nudged Wall Street toward bull market territory.

With the European Central Bank expected to deliver another quarter point cut in the euro zone's borrowing costs to 2% later, investors are keen to hear what Christine Lagarde and other policymakers think might come next, given the uncertainty over a potential U.S. trade deal.

German data already out showed industrial orders unexpectedly rose in April due to strong domestic demand. That helped lift Europe's STOXX 600 index .STOXX for a third day running as Germany's approval of a tax relief package also lifted sentiment.

The euro EUR=EBS and regional government bonds barely budged, however, as traders waited on the ECB's move. With euro zone inflation now safely in line with the central bank's 2% target, policymakers have widely telegraphed what would be their eighth cut in the current cycle later.

"A cut today is pretty much a done deal," said Oxford Economics' Oliver Rakau, who expected Lagarde to sound even more non-committal than usual in the post rate-decision press conference.

The combination of trade talks with the U.S. and robust data coming out of Germany increased the chance that this might even be the last cut, although for now Rakau still expects two more before the end of the year.

"A sudden trade deal could shift things along a lot," he said. "They don't want to be wrongfooted and German fiscal stimulus also coming."

The currency markets were largely in a holding pattern.

The dollar had dropped in the previous session after weak U.S. jobs and services data, putting the focus squarely on non-farm payrolls due on Friday.

The yield on the 30-year U.S. Treasury bond US30YT=TWEB fell more than 7 basis points to 4.911%, while the benchmark 10-year yield US10YT=TWEB dropped to 4.385%, having been at a 3-month high of 4.629% just a couple of weeks ago. US/

TRADE TALKS

Trump's doubling of tariffs on steel and aluminium imports had also become effective on Wednesday, hitting Canada and Mexico in particular. The same day, his administration sought "best offers" from trading partners to stop other import levies taking effect in July.

Japan was sending key trade negotiator Ryosei Akazawa to the U.S. on Thursday for another round of talks. Germany's chancellor, Friedrich Merz, was also in Washington to meet Trump.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS had jumped 0.7% overnight, with South Korea's KOSPI .KS11 touching an 11-month high amid optimism around new President Lee Jae-myung and Hong Kong's Hang Seng .HSI up 1%.

"There is a degree of complacency in the equity markets in the sense there is an expectation now that there will continue to be resolution and deals being done," said Chris Nicol, Australia equity strategist at Morgan Stanley.

"The black and white of the policy is still to be put in stone and the growth and inflation impacts are still relatively uncertain."

The dollar index .DXY=USD, which measures the greenback against a basket of currencies, rose 0.1% to 98.8, trimming its 0.5% slide on Wednesday.

Among the individual moves the dollar was up 0.3% against the yen JPY=EBS at 143.34, 0.25% higher against the Swiss franc at 0.82025 francs CHF=EBS and virtually unchanged against the euro and sterling at just over $1.14 EUR=EBS and $1.35 GBP=D3 respectively.

Gold pared gains from the previous day, while oil steadied after slipping on a build in U.S. inventories and as Saudi Arabia cut to its July prices for Asian crude buyers. O/RGOL/

Spot gold XAU= edged 0.1% lower to $3,374 per ounce. Brent crude LCOc1 ticked up 0.4% to just over $65 a barrel.