MORNING BID EUROPE-May meets Trump: interests and values

* 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, Jan 26 (Reuters) - British PM Theresa May sets out for the United States today and will be the first foreign leader to meet Donald Trump in the White House. She (Munich: SOQ.MU - news) goes seeking to lay the foundation for a trade deal but insists she will guided in everything by British interests and values.

There could be some uncomfortable moments on the latter: just ahead of the trip, Trump has reaffirmed his belief that "waterboarding" of suspect terrorists is a viable and efficient form of interrogation. Britain's official position is to oppose all forms of torture.

Italy's constitutional court on Wednesday threw out parts of an electoral law approved by former prime minister Matteo Renzi but presented a reworked version that can be used immediately, raising the chance of early elections this year.

The court said any election should be held in just one round, eliminating the run-off between the two largest parties which Renzi had envisaged if none got 40 percent in the first round. Given that no poll puts any of Italy's parties anywhere near 40 percent, the new system will probably lead to a coalition government -- an outcome that would work against the anti-establishment 5-Star Movement, which has ruled out working with others.

GfK (Swiss: GFK.SW - news) data show the mood among German consumers improved further heading into February to reach its highest in five months, according to a survey on Thursday, suggesting shoppers remain upbeat despite the Berlin Christmas market attack and increased political uncertainties.

The other number to watch is the preliminary reading for UK growth in the fourth quarter -- expected at 0.5 pct against a prior 0.6 pct. That will come at 0930 GMT and follows very ambivalent figures from the UK SMMT car sector body this morning -- British car production reached a 17-year high last year, but the June 23 vote to leave the European Union has contributed to a roughly 33 percent drop in investment in the sector.

MARKETS AT 0755 GMT

With (Other OTC: WWTH - news) the Dow Jones Industrial Average finally topping the 20,000 milestone for the first time, the Trump trade would appear to be back on - egged on by an impressive Q4 earnings season. New (KOSDAQ: 160550.KQ - news) record highs in S&P500 and Nasdaq (Frankfurt: 813516 - news) underline Wednesday's broad gains of almost 1 pct, as has the jump in US Treasury and government bond yields around the world. Ten-year US Treasury yields pushed back above 2.50 pct to their highest of 2017 so far and 10-year bund yields have jumped to almost 0.50 pct to their highest in over a year. MSCI (Frankfurt: 3HM.F - news) 's index of world stock markets is up for a fifth straight day and at 437.42 points back within touching distance of its lifetime high of 443.98.

While it's hard to point to brand new factors driving markets back higher, the argument appears to be that Trump's first week of new executive orders shows him following through on many detailed campaign pledges and investors are extrapolating that to his economic policy promises too - on infrastructure, corporate taxation, deregulation and trade. Either way, you might think it would be a bumpy ride, but the ViX index of implied stock market volatility - the so-called 'fear gauge' - fell to its lowest level since 2014.

The dog that hasn't barked so far this week, however, is the dollar itself. The dollar index slipped to its lowest in seven weeks on Wednesday and is flat again this morning. Part of the recoil this year is related to the Trump team's warnings about excessive dollar strength in the short term, although resurgent US yields and equities, Fed rate rise signals and even trade protectionist measures would all argue for continued dollar strength. However, with the likes of euro/dollar and dollar/yen mostly sideways this week, much of the dollar retreat was against sterling - which hit its highest levels since mid-December earlier above $1.2660.

While analysts tie themselves in knots trying to interpret the pound's behaviour solely in relation to Brexit developments, other factors are coming on the radar to lift the pound. UK GDP today should underline the resilience of the UK economy to the Brexit vote into the back end of 2016, with forecasts for 0.5 pct growth during the quarter and 2.1 pct yr/yr. UK PM May's visit to see Trump on Friday is expected to focus on the prospects of a US/UK trade agreement post-Brexit. And the Bank of England's meeting next Thursday, along with its quarterly inflation report, may see the central bank tilt more hawkish on future UK monetary policy in the light of the rebound in headline inflation rates and surprisingly firm economic activity.

Apart from the global growth, inflation and equity picture, European bond yields have been pumped up more broadly ahead of packed European political calendar this year - with Italy's constitutional court ruling on new electoral laws on Wednesday seen as upping the chances for a snap election there around mid-year. European stocks are expected to add to Wednesday's rally meantime - with futures up about 0.2 pct. Brent crude is firmer above $55.

In emerging markets, the standout move of the past day or so was the Mexican peso's 2 pct surge despite Trump's insistence on building a wall on the border between the two countries. While cynics might point to a case of 'buy the rumour, sell the fact' behaviour, local dealers claimed Trump's rhetoric about the importance of the Mexican economy to the United States somehow softened his stance.

On the diary, apart from the UK GDP and a heavy US earnings slate, the euro group finance ministers meet later in Brussels.

Upcoming events/data/ themes for market reports on Thursday:

* Europe corp events: Nordea, Sky (Frankfurt: 893517 - news) , Diageo (LSE: DGE.L - news) , LVMH, Tele2 (LSE: 0QE6.L - news) , Unilever (NYSE: UL - news) , STMicro, BankInter (Amsterdam: BI6.AS - news) earnings; Whitbread (Frankfurt: WHF4.F - news) trading

* Swiss Dec trade

* Italy Nov retail sales

* UK Q4 GDP, Jan CBI distributive trades, Dec (Shanghai: 600875.SS - news) mortgage approvals

* Spain Q4 jobless

* Swedish Dec jobless, industry, PPI

* Eurogroup finance ministers meet in Brussels

* Ukraine, Moldova, Fiji central banks' policy decisions

* US Q4 earnings: Caterpillar (LSE: 0Q18.L - news) , Ford, Microsoft (Euronext: MSF.NX - news) , Intel (Euronext: INCO.NX - news) , Alphabet (Xetra: ABEA.DE - news) , Dow Chemical (Swiss: DOW-USD.SW - news) , Biogen (NasdaqGS: BIIB - news) , Starbucks (Hanover: SRB.HA - news) , Eastman, Invesco (Frankfurt: 3IW.F - news) , Bristol Myers Squibb, Paypal (TLO: PYPL-U.TI - news)

* US flash Jan services PMI, Dec new home sales, weekly jobless

* Mexico Dec trade

* US Treasury auctions 7-year notes (editing by John Stonestreet)