By Marc Jones
LONDON (Reuters) - World shares made guarded gains on Monday, encouraged that Wall Street was able to weather a seemingly disappointing U.S. jobs report last week but with more than enough event risk ahead to keep investors cautious.
European stocks got off to steady start, holding their ground along with safe-haven German Bunds as moves remained limited ahead of the week's bigger events.
The new head of the Federal Reserve, Janet Yellen, delivers her first testimony to the House of Representatives on Tuesday and the Senate on Thursday. Markets will be hoping for reassurance that policy will stay loose for a long time to come.
The dollar had begun to retreat as European trading gathered pace, softened by questions over Yellen's stance and what if any impact a second successive month of uncertain jobs data could have on the Fed's stimulus withdrawal.
It was last trading at $1.3644 to the euro and was buying 102.20 yen, a turnaround from Asian trading when it had bobbed as high as 102.41.
"I think the market is bit on the dovish side of where it should be," Saxo Capital Markets chairman Nick Beecroft said.
"Given the perception of Janet Yellen being a dove, if she doesn't come over extra-dovish it could be a bit of a disappointment."
Both stocks and the dollar initially retreated when Friday's U.S. payrolls report showed a rise of only 113,000 in January, falling well short of forecasts. The damage was limited by a very strong household survey in which a sharp jump in the number of people employed nudged the jobless rate down to 6.6 percent.
That mixed bag of data left Treasuries little changed with yields on 10-year notes a shade lower at 2.67 percent in early Monday trade.
In commodities, oil prices lost momentum having initially extended their recent gains as persistently cold weather across the United States continued to eat into heating fuel stocks.
U.S. crude made an early six-week peak at $100.46 a barrel but could not force its way past the December high at $100.75. Brent crude oil futures gave up 21 cents of last week's gains to stand at $109.35 a barrel.
Spot gold was also firm at $1,271.70 an ounce, but faces stiff resistance from $1,273 to $1,278.
YELLEN FROM THE HILL
Japan's Nikkei led the way in Asian trading, with a rise of 1.3 percent to 14,668, and away from last week's trough at 13,995. Shanghai also added 1.7 percent after its recent sell-off.
But emerging market tensions were back in focus after credit rating downgrades late on Friday for Turkey and Ukraine, two of the countries most under fire in markets.
Turkey's lira and its main stock market suffered their biggest falls in a week although losses in Ukrainian assets were limited by its imposition from Friday of capital controls.
Expectations that cuts in U.S. monetary stimulus, which has buoyed risk assets for several years, are one of the main reasons for the pressure being seen in emerging markets.
Fed chair Yellen will be able to offer her own reading of the jobs report before lawmakers this week, which could give markets a fresh steer on the pace of stimulus withdrawal.
Analysts generally assume she will stick to the script of recent policy meetings, reiterating that a gradual decline in asset buying is likely as long as the economy continues to improve as assumed.
"We expect her to state that tapering is not on a pre-set course and the committee will adjust course as needed, particularly if the expected firming in growth and gains in payrolls do not persist," Barclays analysts said in a note.
Yellen is also likely to repeat the standard forward guidance that the funds rate will remain near zero until the unemployment rate falls well below 6.5 percent, as long as inflation is subdued.
BEARS IN THE CHINA SHOP
Major U.S. data includes retail sales on Thursday, for which a flat result is forecast due partly to bad weather and a rise in gasoline prices.
China releases trade numbers on Wednesday and consumer prices on Friday. Analysts at Commonwealth Bank of Australia predict exports will have shrunk in January but mainly because of significant base effects as January last year saw an outsized 25 percent increase.
Trade flows can be very volatile in January and February because of the timing of the Lunar New Year holiday.
The euro zone releases its first estimate of economic growth on Friday and forecasts favor a slim 0.2 percent increase in the fourth quarter, which would keep pressure on for more action from the European Central Bank.
ECB President Mario Draghi gives a speech on "Progress Through Crisis?" on Wednesday and markets will be sensitive to any hint of further accommodation to come.
The Bank of England issues its February Inflation Report on Wednesday, which is likely show price pressures are muted and so support the outlook for low rates.
BoE chief Mark Carney is expected to sketch out a new format for forward guidance after a quicker-than-expected fall in unemployment undermined an original plan, outlined in August.
(Additional reporting by Wayne Cole in Sydney; Editing by Catherine Evans)