MORNING BID EUROPE-Catalonia: still troubled terrain for Spain

* 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, Feb 12 (Reuters) - Spanish politics resemble a minefield these days. A soon-to-be-confirmed government plan to remove the remains of fascist dictator Francisco Franco to a less monumental resting place raises passions over 40 years after his death. And while independence remains a distant prospect, the Catalonia question may still have the power to unseat the national government. Twelve Catalan secessionist leaders go on trial in Spain's Supreme Court today, charged for their role in a failed independence bid 16 months ago. The defendants face charges of rebellion, sedition and misuse of public funds; their supporters say they are political prisoners and that the trial itself is political (notwithstanding the more conciliatory tone of the new government of Pedro Sanchez). Verdicts will take months. But the trial starts a day before Sanchez's minority government faces a vote on the 2019 budget for which it needs the support of Catalan parties. They have so far vowed to block the bill: that in turn could force a parliamentary election.

It is Italian Prime Minister Giuseppe Conte's turn to come to the European Parliament in the latest of a series of debates with national leaders on the future of the European Union. Given the range of subjects on which his government is at odds with Brussels - from EU rules on national budget deficits to migration - his appearance will be more closely watched than most. It will also be hard for him to skirt the row with France, which has worsened after 5-Star leader Luigi Di Maio went to Paris to egg on "yellow vest" protests against Emmanuel Macron.

British Prime Minister Theresa May will address parliament on the latest Brexit developments today, but with little sign of movement out of the impasse, briefers say her top line will be that lawmakers should "hold their nerve" - presumably to be translated as something like "keep quiet and give me more time". Bank of England Governor Mark Carney's speech at an FT event today is likely to be more downbeat after the bank confirmed last week the UK is heading for its slowest growth in a decade.

MARKETS AT 0755 GMT Global stock markets breathed a sigh of relief overnight amid signs of compromise in the standoff over U.S. government funding and positive noises surrounding the Sino (Dusseldorf: 1205802.DU - news) -U.S. trade talks in Beijing, and the dollar stood out over the past 24 hours as it surged to its best levels of the year so far. The DXY dollar index briefly touched its highest since Dec (Shanghai: 600875.SS - news) . 18 overnight, with euro/dollar sliding to its lowest since mid-November at $1.1265 on growing anxiety about the stalling of the euro zone economy and the European Central Bank’s likely response. With (Other OTC: WWTH - news) analysts stressing the fact that a pause in the Federal Reserve’s interest rate rise campaign still leaves it reducing its balance sheet by some $50 billion a month and tightening liquidity in the process, dollar strength has been underscored around the world. Dollar/yen hit its highest since late December at 110.64, and the MSCI’s emerging-market currency index fell to its lowest against the dollar since Jan. 25 late on Monday before gaining this morning on the positive trade noises.

Comments from U.S. and Chinese officials that the two sides were moving toward a deal to beat the March 1 deadline for U.S. tariff rises on Chinese goods helped lift Shanghai stocks 0.7 percent, with the yuan a shade stronger too. Details on just what progress was made remain scarce, however. Japan’s Nikkei, returning from Monday’s holiday, outperformed in Asia and gained more than 2 percent with the aid of the weaker yen. U.S. stock futures were up on the news that a tentative deal had been reached to avert another U.S. government shutdown, although there was still no agreement on funding President Donald Trump’s border wall with Mexico and no sign yet that Trump himself has endorsed the agreement. With many investors fretting about what some see as the onset of an earnings recession in the United (Shenzhen: 000925.SZ - news) States this quarter, the mood had been darkening again on Wall Street despite the new year rebound.

Back in Europe, concerns about the Brexit impasse add to the economic gloom. Sterling slipped to a six-week low on Monday after UK data showed economic growth last year was the worst since 2012. UK PM May is due to present her latest Brexit update to parliament later on Tuesday and Bank of England chief Mark Carney also speaks. Sweden’s crown firmed meantime ahead of the Riksbank’s latest policy decision, where it is expected to leave rates on hold but signal a tightening later in the year, in line with the ECB. Bond markets are keeping an eye on Spain, where the budget is in parliament amid talk of snap elections there. Futures on main euro-zone benchmarks are trading up more than 0.5 percent, with trade-sensitive DAX up as much as 0.8 percent. On the European corporate front, earnings will help drive direction, with strong numbers from Gucci owner Kering (LSE: 0IIH.L - news) , Michelin (Paris: FR0000121261 - news) and Randstad. Thyssenkrupp (IOB: 0O1C.IL - news) delivered a mixed report.

* Europe corp events: Flughafen Zurich sales, Getlink traffic, Ingenico (Paris: FR0000125346 - news) , Kering, Metro (Dusseldorf: 62M.DU - news) , Natixis (LSE: 0IHK.L - news) , Orpea (EUREX: 1402467.EX - news) sales, Randstad, Scout24 (IOB: 0RB8.IL - news) , Kvaerner, Temenos, Thyssenkrupp, TUI (LSE: 0NLA.L - news)

* Riksbank policy decision

* European finance ministers meet in Brussels

* Bank of England chief Carney speaks

* UK PM May updates parliament on Brexit impasse

* Spanish parliament debates 2019 budget

* Sweden Jan jobless

* SAfrica Q4 jobless, Dec manufacturing

* SAfrica president to announce healthcare reforms

* US Q4 earnings: TripAdvisor (Frankfurt: A1JRLK - news) , Occidental, Under Armour (Xetra: U9R.DE - news) , Molson Coors

* Cleveland Fed chief Mester speaks in Cincinnati

(Editing by Larry King)