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market analysis for 01 March 2016President Vladimir Putin said on Tuesday that Russia's foreign exchange reserves should not be used to help resolve the country's current economic problems. "Gold and foreign exchange reserves are for other purposes," Putin told a meeting of Russian entrepreneurs. "(They) are not for financing current economic problems."

The euro hit its lowest in almost three years against the yen while European shares extended their strongest run of the year on Tuesday as data from around the region bolstered the case for more ECB stimulus next week.

Asia had risen after weak China data fanned stimulus hopes there, and the same pattern emerged in Europe as euro zone manufacturing activity expanded at its weakest pace for a year despite more deep discounting. Markit's Purchasing Managers' Index (PMI) will make gloomy reading for the European Central Bank, a day after it was confirmed deflation is back in the bloc and a week before its next meeting where pressure for action is building.

In the currency markets, the euro slipped to a one-month low after the PMI data while the yen was still hot to the touch having completed its best month against the dollar since 2008 and reached its highest against the euro EURJPY= since April 2013 overnight. The gains came despite Japan earlier becoming the first G7 economy to sell a 10-year government bond at a negative yield, something that would usually make the currency less attractive as investors are effectively paying rather than getting paid to hold them.

"The yen strength right now is largely being dominated by (weak) risk appetite," said UniCredit's Global Head of FX Strategy Vasileios Gkionakis. On the euro he added: "There is no doubt the low inflation and the soft economic data is keeping the pressure on the ECB to do something next week."

There was a glimmer of hope for the central bankers though as Brent oil prices LCOc1, the big downward force on inflation for the last two years, hit their highest since the start of the year after their best month since August. It helped German Bund yields nudge off 10-month lows after the previous day's deeper than expected fall in euro zone consumer prices had triggered fresh bond buying as inflation expectations EUIL5YF5Y=R hit their lowest on record.

The European Central Bank is expected to cut its deposit rate by at least another 10 basis points when it meets next Thursday ECBWATCH and add to its 1.5 trillion euro bond buying scheme. The yen fell on Tuesday as rising stock markets increased demand for riskier trades, while expectations of more easing by the European Central Bank following soft euro zone factory data pushed the euro to a one-month low against the dollar.

Asian stock markets, including China's ended higher and European shares rose, lowering demand for the safe-haven yen. The Chinese yuan also climbed, after the central bank fixed a higher mid-point for the onshore currency, calming nerves in the foreign exchange market and bolstering overall risk appetite - even though China suffered a seventh straight month of decline in manufacturing.

The dollar was up 0.5 percent against the yen at 113.14 and the euro was 0.4 percent higher at 123 yen, recovering from a low of 122.085 struck earlier in the Asian session, its lowest level since April 2013. "The disappointing data from China is keeping alive hopes of more stimulus, and that is helping overall risk sentiment and putting the yen under pressure," said Yujiro Goto, currency strategist at Nomura, London.

On Monday, the People's Bank of China announced a cut in the amount of cash that banks must hold as reserves - the reserve ratio requirement - by 50 basis points. That frees an estimated $100 billion in cash for fresh lending, and some analysts now expect fiscal stimulus from Beijing to shore up the economy.

In February, the yen saw its best month since late 2008, buoyed by volatile stock markets, slowing growth in China and a view among global investors that major central banks are running out of ideas to spur growth and boost inflation. The euro stayed under pressure against the dollar and the pound EURGBP=D4 after data showed that euro zone manufacturing activity expanded at its slowest pace for a year, making a gloomy reading for ECB policymakers.

The euro has been losing ground since peaking at $1.1377 on Feb. 11, as investors bet on ECB action at its March 10 policy review. Still, the drop has not been as sharp as in the run up to the December meeting, when the ECB's easing measures disappointed investors and led to a sharp rebound in the euro. "While the downside risks to a further drop in the euro are building, the pace will be slow. That is because investors are worried that the ECB could disappoint, just like they did in December," said a spot trader. In the options market, the short-dated risk reversals a gauge of demand for options on a currency rising or falling - show a bias for euro strength in the coming week.

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