GLOBAL ECONOMY WEEKAHEAD: Central bank arsenals in spotlight as headwinds linger

By Sarah White

MADRID (Reuters) - At the end of a tough quarter, the fraught debate over how policymakers should tackle the world's economic woes gets another airing in the coming week as central banks on both sides of the Atlantic publish minutes.

Solid growth in U.S. employment and an unexpected manufacturing uptick in China in March will have provided some comfort on Friday, but headwinds -- Japan's factory sector disappointed last month and euro zone inflation was anaemic -- invariably lurk nearby.

Cue more rumblings over bankers' ability to respond.

Federal Reserve minutes, released on Wednesday and coming days after chair Janet Yellen set a dovish tone, are likely to provide fodder for those expecting it to remain cautious, though speeches from six more Fed officials, including two ratesetters with hawkish reputations, could shift the tone.

Across the pond, central bank watchers are likely to zone in on the European Central Bank's margin for manoeuvre after it unveiled further stimulus in March with deeper rate cuts and a boost to its monthly asset buys.

The more detailed account of the ECB's last meeting due on Thursday should send investors scouring for clues over its willingness to go further, after its president Mario Draghi's suggestion interest rates had hit the bottom.

"We see scope for the account to signal a bit more openness to the prospect of rate cuts than indicated in comments (at the March meeting)," economists at BNP Paribas said in a note.

"A key reason would be to avoid adding upward pressure on the currency," they added, referring to a rising euro in recent weeks that has stumped analysts.

The ECB's chief economist and several executive board members are scheduled to appear at events across Europe in the coming days.

Euro area annualised inflation picked up slightly in March, to -0.1 percent from -0.2 percent a month earlier, though it remains well off the ECB's target of nearly 2 percent, raising pressure on the central bank to leave the door open to further stimulus.

Manufacturing activity in the euro zone remained weak in March, meanwhile. Surveys on the services sector across the 19-nation currency bloc, expected on Tuesday, should add to the picture.

RATE MOVES

A strong U.S. jobs report for March, which along with a rebound in wages underscored the economy's resilience, did little to revive projections the Fed might consider accelerating interest rate cuts.

"Following the reassurance ... that the Fed will tread cautiously, hopefully the markets can enjoy these numbers without panicking about a rate rise," Robert Craig, a private client investment manager at MB Capital in London said in emailed comments.

Yellen's recent comments that slowing world growth and weak oil prices posed a downside risk for the U.S. economy further cooled any projections the central bank could hike rates again as soon as June.

The Fed raised rates in December for the first time in nearly a decade, but officials last month downgraded their economic growth expectations and forecast only two more rate hikes for 2016.

Yellen is due to take part in a discussion with former Fed Chair Ben Bernanke on Thursday.

For now it will be up to other central banks -- among them Australia's, Poland's and India's -- to consider policy changes, with rate decisions scheduled for the coming days.

The first two are expected to keep rates steady at record lows, while India is seen cutting them at its policy review on Tuesday as inflation falls.

In China, an update on foreign exchange reserves, expected on Thursday, should show a moderation in the declines noted in recent months when the central bank stepped up efforts to prop up the yuan and dump the dollar to stem capital outflows.

"The enforcement of current capital controls and a more dovish tone from the (Fed) on the tightening cycle will improve China's capital-flow dynamics and further slow the pace of decline in FX reserves in the near term," analysts at Standard Chartered said in a note.

They forecast a $10 billion fall in the reserves to $3.192 trillion euros at the end of March, after signs the Chinese central bank was already scaling back its interventions in February.

(Reporting by Sarah White; editing by John Stonestreet)