Sawt Falasteen - Stocks skittish on US data shock, debt standoff

Traders reacted also to a mixed inflation picture out of Europe and weekend elections in Thailand and Turkey.

Asian stock markets kicked the week off with gains amid "growing hopes that the Democrats and Republicans will reach a deal to avert the disastrous scenario of a government default" in the world's biggest economy, said Victoria Scholar, head of investment at Interactive Investor.

Biden said Sunday that "I really think there's a desire on their part as well as ours to reach agreement" ahead of fresh talks Tuesday with Republican leaders, including House Speaker Kevin McCarthy.

Officials have said the US government could run out of measures to avoid a default by early June.

But investor enthusiasm petered out as the open of trading on Wall Street approached, with most European markets falling in the red after starting the day in the green.

The Dow edged higher at the opening bell, but then sank before climbing back to its starting point in late morning trading. European stocks ended flat for the most part.

"Until we have Republicans and Democrats move a little on tax increases, increasing the debt ceiling, or federal spending, any optimism is premature," said market analyst Edward Moya at OANDA trading platform.

Meanwhile, sentiment was dented after a key manufacturing survey showed a sharp drop in activity. The New York Fed Empire State Manufacturing Survey plunged from 10.8 in April to -31.8 points in May. The figure was much worse than expected and indicates a contraction.

"This is the type of data that should give the Fed some pause about raising rates further," said Briefing.com analyst Patrick O'Hare.

The US Federal Reserve has repeatedly raised interest rates to tame high inflation, which analysts have worried may ultimately push the economy into recession.

Elsewhere, European gas prices reached the lowest levels in almost two years as concerns about tight supplies continued to ease heading into the summer.

On currency markets, the Thai baht rallied as pro-democracy parties looked set to win weekend general elections, with voters delivering a clear rejection of nearly a decade of military-backed government.

The progressive Move Forward Party claimed victory Monday, while the Pheu Thai party agreed to join a coalition government.

However, stocks in Bangkok fell.

The Turkish lira edged down, reversing earlier gains, as the country looked set for a presidential election runoff.

President Recep Tayyip Erdogan will face opposition candidate Kemal Kilicdaroglu again in a second round on May 28 if neither candidate achieves the 50 percent needed to win.

"If these results hold, it would be one of the worst outcomes for the markets," said Ogeday Topcular, a money manager at RAM Capital SA.

"There will be (no clarity) for the next two weeks."

In Brussels, the European Commission boosted its 2023 economic growth outlook for the eurozone -- but also raised the inflation forecast for the single currency area.

"The European economy is in better shape than we projected last autumn," said the EU commissioner for the economy, Paolo Gentiloni, said.

"Thanks to determined efforts to strengthen our energy security, a remarkably resilient labour market and easing supply constraints, we avoided a winter recession and are set for moderate growth this year and next."

- Key figures around 1530 GMT -

New York - Dow: FLAT at 33,293.98 points

London - FTSE 100: UP 0.3 percent at 7,777.70 (close)

Frankfurt - DAX: FLAT at 15,917.24 (close)

Paris - CAC 40: UP less than 0.1 percent at 7,418.21 (close)

EURO STOXX 50: DOWN less than 0.1 percent at 4,316.41 (close)

Tokyo - Nikkei 225: UP 0.8 percent at 29,626.34 (close)

Hong Kong - Hang Seng Index: UP 1.8 percent at 19,971.13 (close)

Shanghai - Composite: UP 1.2 percent at 3,310.74 (close)

Euro/dollar: UP at $1.0870 from $1.0853 on Friday

Pound/dollar: UP at $1.2517 from $1.2451

Dollar/yen: UP at 136.10 yen from 135.69 yen

Euro/pound: DOWN at 86.85 pence from 87.14 pence

Brent North Sea crude: UP 1.3 percent at $75.11 per barrel

West Texas Intermediate: UP 1.4 percent at $71.00 per barrel

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U.AlSharif--SF-PST