By Richard Hubbard

LONDON, Feb 1 (Reuters) - The euro hit a fresh 14-month high

and European stocks gained on Friday after economic data raised

hopes that the region's downturn has eased, but moves were

limited as investors await a U.S. jobs report.

Euro zone factories had their best month in nearly a year

during January although the currency bloc is likely to remain

mired in recession for a few more months, the latest reading of

Markit's Purchasing Managers' Index (PMI) showed.

'Providing there are no further setbacks to the region's

debt crisis, these data add to the expectation that the euro

zone is on course to return to growth by mid-2013,' said Chris

Williamson, chief economist at data compiler Markit.

The euro hit a high of $1.3657 after the data came

out, its highest level since November 2011. The common currency

also hit a 33-month high against the yen, rising more than 1

percent to 125.96 yen.

The pan-European FTSEurofirst 300 index extended

its recent gains by 0.4 percent to 1,169.14 points, near a

23-month high after solid rally since the start of the year.

London's FTSE 100, Paris's CAC-40 and

Frankfurt's DAX were up between 0.5 and 0.8 percent.

Earlier, China's official PMI for January eased to 50.4,

missing market expectations for a rise and underscoring the

fragility of the recovery from the economy's weakest year since

1999.

However, a separate private survey showed that growth in

China's giant manufacturing sector hit a two-year high in

January as domestic demand strengthened, underlining hopes the

nation's economic recovery is slowly gaining momentum.

The Chinese data left MSCI's broadest index of Asia-Pacific

shares outside Japan little changed

have already risen by a

quarter of a percentage point since the start the year - the

equivalent of a standard ECB interest rate increase - and are

likely climb by at least the same amount again if the money

continues to drain rapidly from the system.

For Europe's struggling countries and the ECB this is not an

ideal situation, effectively tightening monetary policy and

creating unwanted stress just as economies are showing fragile

signs of improvement.

JOBS EYED

Friday's U.S. nonfarm payrolls data due at 1330 GMT could be

a another factor to drive the euro higher, as a strong report

would knock the safe-haven dollar.

The dollar was trading at a 3-1/2 month low against a basket

of currencies on Friday after falling 0.3 percent to

78.97 points.

Employers are expected to have added 160,000 new jobs to

their payrolls in January, a marginal step up from December's

155,000 gain, according to a Reuters survey of economists. The

unemployment rate is seen holding steady at 7.8 percent.

The U.S. economy unexpectedly contracted in the fourth

quarter, its weakest performance since emerging from recession

in 2009, and it grew just 2.2 percent in the whole of 2012.

The U.S. ISM factory survey, a national report on the state

of American manufacturers, is also due at 1500 GMT. [ECONUS

($1 = 0.7367 euros)

(Additional reporting by Marc Jones,; editing by Philippa

Fletcher)

((richard.hubbard@thomsonreuters.com)(Tel +44 207 5423215))

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Keywords: MARKETS GLOBAL/

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