MORNING BID EUROPE-Breaking up is hard to do: Catalonia

* A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own.

LONDON, Sept 29 (Reuters) - Spain heads into an uncertain weekend with police expected to start sealing off schools and other buildings that could be used as polling stations for Catalonia's illegal independence referendum set for Sunday. Passions are high and some parents plan to hold sleep-ins at their children's schools to prevent them from being sealed. It is furthermore unclear whether Catalan or state police will take on the task, given that many Catalan officers will be ambivalent about carrying out orders.

Madrid is convinced it has done enough to undermine the vote to such an extent the outcome won't be valid, and it is not clear that Catalan leaders will now unilaterally declare independence as once expected. But this whole saga could have lasting after-effects for Spain's body politic whichever way it goes.

After accusing Boeing (NYSE: BA - news) of undermining the U.S. trade partnership with Britain, British PM Theresa May has now waded into a second industrial dispute by backing Uber in its row with the London transport regulator, calling its ban on safety concerns "disproportionate" and jeopardising thousands of jobs.

Whatever comes of that increasingly politicised stand-off, there will be a mega read-out on the state of play in the UK economy today with the third reading of economic growth figures April-June adding to various other data points. What should emerge is a detailed picture of how households and companies are responding to rising inflation and the Brexit uncertainty. Just as important will be monthly output figures for Britain’s vast services industry for July, the first month of the third quarter. Investors are watching for the latest size of the current account, which is expected to hold steady.

MARKETS AT 0655 GMT

On the last trading day of the third quarter, the dollar is on track for its best week of the year so far, boosted by U.S. President Donald Trump’s tax plan and expectations for a third rise in Federal Reserve interest rates later this year.

U.S. Treasury yields are up on Friday, after the yield curve steepened on Thursday on concern about faster growth in the federal deficit and borrowing. The dollar index, which measure the U.S. currency against a basket of other major currencies, is up 0.1 percent but slightly down on Thursday’s six-week highs.

Traders will be keeping a close eye on core U.S. personal consumption and expenditure data due later for a view on inflation expectations, especially in the light of the world’s biggest economy growing faster than expected in the second quarter.

Euro zone inflation data will also be a focus. German 10-year bond yields are flat.

European stocks are also heading for their best monthly gains this year as the third quarter draws to a close. A weakening euro has taken pressure off the region’s equities and investors found renewed enthusiasm for the asset class after the slow summer months.

Euro zone stocks were set to build on three-month highs and solidly on track for a quarterly gain after falling back in Q2 when worries about the strengthening euro dented equities. Euro zone CPI data on Friday could provide an additional catalyst.

Britain’s FTSE is missing out on the European optimism, set for a loss on the month as sterling strengthened. There were signs investors’ mood on the market was souring, with HSBC pointing to investors shuffling money out of UK equity funds and into Europe ex-UK instead.

In company news, the CEO of French telecoms firm Orange (LSE: 0OQV.L - news) poured cold water on long-running market rumours of mergers between European communications companies, saying he didn’t see a deal creating value or being achievable. Its shares along with Bouygues (LSE: 0HAN.L - news) and Vivendi (LSE: 0IIF.L - news) could react on the comments in French daily Les Echos.

France’s prime minister also advocated caution over investors hoping to snap up L’Oreal after the death of billionaire stakeholder Liliane Bettencourt last week, saying the government would look very carefully at any overseas bids for the "extremely important asset".

Troubled British outsourcer Carillion (Frankfurt: 924047 - news) warned on full-year results, likely marking the end of a two-day rally for the stock after rumours of a takeover bid. Carillion’s shares have lost two-thirds of their value since announcing a writedown in mid-July.

In other company news and stock movers: Bayer (IOB: 0P6S.IL - news) sells further stake in Covestro (IOB: 0RBE.IL - news) for 1 bln euros; French PM says would closely watch any attempt to change L'Oreal ownership; Carillion warns on full-year results, makes further provision; Aviva (Other OTC: AIVAF - news) sells Italian JV to Banco BPM for 265 mln euros; France's Orange CEO sees little prospects for pan-European mergers - Les Echos

Asia’s main index of Asia-Pacific shares, excluding Japan, rose 0.4 percent and Tokyo shares inched lower.

Brent crude oil prices are flat , copper is set for its fifth quarterly gain in succession and gold, hit by the strong dollar, is on track for its biggest month fall of 2017.

Emerging markets rose 0.5 percent after six losing sessions but were on track to end the week down 2.2 percent and the month down almost 1 percent. Over the quarter, emerging stocks are up 6.6 percent, having performed strongly in July and August.

Asian stocks rebounded after several weak sessions, with South Korean stocks up 0.8 percent and Indian shares up 0.6 percent. Chinese mainland shares rose 0.4 percent ahead of a week-long national holiday and posted a solid 4.7 percent gain for the quarter. Hong Kong shares also rose 0.3 percent but were on track for their first monthly loss this year.

The prospects of U.S. rate rises have boosted the dollar and U.S. Treasury yields this week, putting emerging market assets under pressure. China’s yuan fell to its lowest level in over a month after the central bank set the official midpoint at the weakest since Aug. 25.

The Turkish lira has traded at 2 1/2-month lows this week but firmed 0.2 percent on Friday. President Tayyip Erdogan has called the Iraqi Kurdish independence referendum illegitimate and investors are concerned it could inflame separatist tensions in Turkey.

The South African rand firmed 0.3 percent against the dollar after plumbing 5 1/2-month lows on Thursday. Producer price inflation rose more than expected in August but remained below the central bank’s upper inflation target of 3 to 6 percent.

The central bank governor told Reuters that South Africa must sort out its political problems so it can kickstart structural reforms and spur economic growth.

Japan Aug all-household spending/CPI/unemployment/prelim industrial output Germany Aug import prices/retail sales/unemployment France Aug consumer spending/Sept flash PMI Thailand Aug trade UK Aug Bank of England consumer credit/mortgage lending Greece July retail sales Euro zone Sept flash inflation U.S. Aug personal consumption and income Canada July GDP U.S. Sept Chicago PMI/final U Mich sentiment Colombia rate decision S&P Global (Frankfurt: 851710 - news) reviews Spain, Kenya, Malta credit ratings Fitch reviews Switzerland, Norway credit ratings (Editing by Larry King)