Chinese shares turn higher after data, dollar edges off 7-week low

By Dominic Lau

TOKYO (Reuters) - Chinese shares turned higher on Friday while gold prices fell after China's better-than-expected industrial production data added to optimism the economy may be stabilising after more than two years of slowing growth.

The Australian dollar extended gains after the robust Chinese data, which came a day after a surprisingly firm rebound in China's July exports and imports.

The dollar steadied above seven-week lows against a basket of major currencies, having fallen for five days in a row -- its longest such streak since mid-June -- on uncertainty about when the U.S. Federal Reserve would start winding back its stimulus.

European stock index futures were up 0.4 percent, indicating a firmer open, while Japanese shares logged their biggest weekly drop in two months.

China's CSI300 index reversed early losses to trade up 0.4 percent after China's industrial output rose 9.7 percent last month, above expectations.

"The biggest surprise is obviously industrial production, which seems to be consistent with the import surprise yesterday. This is another sign that growth may be stablising in China, really," said Wei Yao, China economist at Societe Generale in Hong Kong.

Data showed China's annual consumer prices rose 2.7 percent in July, unchanged from the previous month and broadly in line with market expectations.

The Australian dollar, which is seen as a proxy for China because of their extensive trade, was up 0.4 percent at $0.9145 on the day. It pulled further away from a three-year trough touched earlier this week just before the Reserve Bank of Australia (RBA) cut its cash rate to a record low 2.5 percent.

The RBA on Friday trimmed its near-term economic outlook, projecting sub-par economic growth out to the middle of next year as a long boom in mining investment cools.

NIKKEI'S WEEKLY LOSS

Tokyo's Nikkei share average added 0.1 percent in a volatile session but was down 5.9 percent this week as the yen strengthened.

The Japanese currency was steady at 96.670 yen to the dollar but is up 2.3 percent so far this week.

"Essentially, the dollar has been falling after the payrolls numbers were weaker than expected," said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ.

"But I think the dollar is just testing the lower end of its range rather than entering a fresh downtrend. Sentiment may change if upcoming U.S. data, such as retail sales, shows strength."

The euro hovered near a seven-week high versus the dollar at $1.33850.

Shares in the MSCI Asia-Pacific ex-Japan index were up 0.1 percent after gaining nearly 1 percent on Thursday.

Japanese shares' 12-month forward price-to-earnings ratio has fallen to 13.8 from a two-month high of 14.8 hit last week, according to Thomson Reuters Datastream.

Multiples for shares in the MSCI Asian price gauge eased to 11.4 from a two-month high of 11.5 reached last week.

In commodities, copper prices fell 0.6 percent to around $7,140 a tonne, giving up some of the previous session's 2.6 percent rise to a near two-month high after unexpected strength in trade data from top buyer China raised hopes of a pick-up in demand.

Gold reversed early gains to trade down 0.3 percent after rising 1.9 percent on Thursday. Brent crude prices advanced 0.2 percent to below $107 a barrel and were on track to end a five-day run of losses -- the longest such streak since mid-April.

(Additional reporting by China economics team, Jungmin Jang in Seoul and Hideyuki Sano in Tokyo; Editing by Jacqueline Wong and Eric Meijer)