MORNING BID EUROPE-ECB baby steps - a warning from Germany

* 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 8 (Reuters) - Among the features of yesterday's press conference by European Central Bank chief Mario Draghi were repeated questions by German journalists about the negative side-effects of the bank's stimulus programme, which it is now clear the ECB wants to wind down as gradually as it can. Those questions reflect the concerns in Germany about a loose monetary policy, which local politicians see harming German savers and others to the benefit of more profligate economies to the south. Draghi was adamant he saw absolutely no evidence of any such harm, but now the head of Germany's foremost economic institute, Ifo, is warning of a return to the euro crisis if the ECB does not change course soon. The debate is likely to develop today with a host of ECBers, including the Bundesbank's Jens Weidmann, scheduled to speak.

Britain's Chambers of Commerce has downgraded its forecasts for growth over the next two years, concluding that sterling's sharp fall after last year's vote to leave the European Union had done more harm than good. Warning Theresa May's government not to expect any export boom, the BCC (Shenzhen: 002455.SZ - news) was damning about the deep-rooted problems of the UK economy - notably skills gaps and shoddy infrastructure that are hitting productivity. Equally interesting was a survey by the Recruitment and Employment Confederation showing that a drop in people coming to Britain from other EU countries has aggravated a shortage of workers and forced employers to raise starting salaries at the fastest pace in nearly two years during August. If that trend is consolidated, it could already herald a shift in one of the major features of the UK economic model.

MARKETS AT 0655 GMT

European Central Bank President Mario Draghi’s signal that tapering – unwinding of monetary stimulus – is on its way even if it's a slow process has sent the euro soaring to its highest in 2 1/2 years against the dollar, which dropped to its weakest since January 2015 as U.S. Treasury yields fell.

Draghi said the inflation-dampening impact of a strong euro was a concern, but he didn’t really try to talk the single currency down, as some had expected. The euro hit a high of $1.2092 in Asian trade and was last at $1.2063, up 0.4 percent.

In what may be a last hurrah for euro zone bond markets, the fact the ECB is still buying bonds pushed yields lower. Benchmark German 10-year yields are marginally under 0.3 percent on Friday morning while U.S. equivalents hit a 10-month low of 2.016 percent in early European trade.

Traders are also citing flows into low-risk assets as Hurricane Irma continues on its destructive path and an earthquake hit Mexico. Concern that North Korea may launch another missile test on Saturday (Shenzhen: 002291.SZ - news) , a national holiday, are also keeping investors on edge. Gold hit its highest in more than a year at $1,353 an ounce, the Swiss franc hit its highest in two years and the yen rose 0.7 percent versus the dollar.

European bourses are expected to open lower on Friday after a choppy session on Thursday. As the ECB acknowledges that the strengthening euro weighs on inflation prospects, investors fear that "normalisation" of monetary policy could be further down the road than expected.

The pan-European banking index has closed in negative territory for the last four sessions, but some investors could be tempted to buy the dip. In other sectors, Akzo Nobel (Amsterdam: AKZA.AS - news) is set for a rough sessions with pre-market indications of a 5 percent fall after lowering its 2017 financial targets.

Other stocks movers: Vivendi (LSE: 0IIF.L - news) nears deals to cut Mediaset (Amsterdam: MA8.AS - news) stake. Roche blood test could help cancer immunotherapy. Volkswagen (IOB: 0P6N.IL - news) working on deals to sell non-core assets (WSJ) – Barclays (LSE: BARC.L - news) ups ratings of insurance groups across Europe. Exane downgrades Peugeot (Other OTC: PUGOF - news) . India’s Eicher ready to bid up to $2 billion for Ducati.

Oil prices rose on worries Hurricane Harvey may have hit production more than thought. Brent crude was last up 26 cents at $54.75 a barrel.

The dollar’s slide lifted emerging stocks 0.4 percent in a second day of gains to a fresh three year high. The benchmark index was on track for a 0.3 percent weekly gain, having risen eight out of the nine past weeks.

However, the soft dollar failed to bring much cheer to emerging currencies, with South Africa’s rand, Turkey’s lira and Russia’s rouble a touch weaker. All remain on track for gains of around 1 percent since Monday, though, their fourth week of gains.

The lira has hit a one-year high, the Taiwan (Taiwan OTC: 6549.TWO - news) dollar a three- year high. And after testing the 6.5 level against the dollar on Thursday, the Chinese yuan's onshore spot rate has now broken through, at one point hitting a 21-month high of 6.4478, with daily gains at 0.6 percent. The currency is on track for its best week since revaluation in 2005.

Solid trade data out of Beijing also provided support, with the rise in exports in August of 5.5 percent coming in a touch below expectations while imports growing at 13.3 percent well outstripped expectations.

Mongolian Eurobonds are under some pressure after parliament voted to oust Prime Minister Jargaltulga Erdenebat following his ruling Mongolian People's Party (MPP) defeat in a July presidential election. The country has seen 13 governments in 25 years and no prime minister has completed a term since 2004. So far, no reaction.

Ukraine made a tender offer to holders of its dollar bonds maturing in 2019 and 2020 in an effort to extend its debt maturities.

* Germany July trade balance

* Spain July industrial output

* UK July /construction/industrial/manufacturing output

* Canada August unemployment

* S&P Global (Frankfurt: 851710 - news) reviews Kazakhstan, Bosnia, Rwanda ratings; Moody’s reviews Slovenia, Lithuania (Editing by Larry King)