By Jonathan Cable
LONDON (Reuters) - Fears over the health of China's economy kept world markets on edge this week and the country will remain in focus, along with the question of whether the Federal Reserve will raise interest rates next month.
Those concerns sent world stocks, commodities and currencies on a roller-coaster ride this week, and purchasing manager surveys due on Tuesday are expected to show manufacturing contracted during August in the world's second-biggest economy.
"China, the epicenter of the week's moves, is set to remain in focus over the next week as markets attempt to assess whether the worst of the sell-off has been seen," said Philip Shaw, chief economist at Investec.
"Despite September lift-off seemingly now off the cards, the timing of the FOMC's decision to raise interest rates thereafter remains data-dependent, hence Friday's non-farm payrolls report will still be a release worth watching."
The case for raising rates in September now seems less compelling, Federal Reserve Bank of New York President William Dudley said this week, leading several large banks to push back expectations.
"You are probably not getting it any clearer from a central banker than that," said Harm Bandholz, chief U.S. economist at UniCredit as he moved his call from September to December.
Markets will therefore be watching business surveys, factory orders and trade data from the world's largest economy as well as the employment numbers due on Friday.
"The week finishes with non-farm payrolls for August, typically the biggest market mover globally, and definitely on the Fed's radar given unemployment is already close to full employment and the Fed looking to gauge whether there is `some' further labor market improvement," economists at National Australia Bank said.
A strong labor market, cheaper gasoline and higher home prices have boosted household wealth, helping to support consumer spending.
The U.S. economy grew much faster than initially thought in the second quarter on solid domestic demand. A build-up of inventories may weigh on growth this quarter, but the blow should be softened by rebounding business investment.
Britain's economy also enjoyed relatively healthy growth in the second quarter, but a strong pound
STEADY HAND
China's central bank cut interest rates and lowered the amount of reserves banks must hold for the second time in two months on Tuesday. Expectations are high for more easing before the end of the year.
The European Central Bank is expected to keep a steady hand when it meets next week, days after data are likely to show there is still very little inflation in the currency bloc.
Almost half a year since the ECB started pumping 60 billion euros a month of fresh cash into the economy, annual inflation data, due on Monday, will probably still show prices rose only 0.1 percent in August - nowhere near the bank's 2 percent target ceiling.
There is a growing chance the ECB will extend its stimulus program beyond the planned completion in September 2016, and if inflation data misses expectations that likelihood will only increase.
The Reserve Bank of Australia meets on Tuesday. No change in policy is expected, despite the resource-rich country's reliance on Chinese demand. Sweden's Riksbank is also unlikely to move on Thursday.