MORNING BID EUROPE-UK-France summit: entente cordiale with limits

* 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 18 (Reuters) - Brexit is officially off the agenda when France's Emmanuel Macron meets Theresa May in London today but British media are wondering whether his loan of the some 950-year-old Bayeux Tapestry to the UK isn’t his idea of a clever anti-Brexit gag. The artwork recalls the Norman invasion of Britain, which ultimately gave the host country a proper court system, reshaped its language and boosted the local economy - in short, a shining example of the benefits of immigration (albeit by the sword in this case..) The more serious purpose of the summit is to nurture some UK-French goodwill and demonstrate that ties between the two will continue to function despite Brexit - hence the UK decision to send helicopters to Mali to help in counter-insurgency efforts there. Yet there are suggestions that Brexit has nonetheless curtailed the scope of what Macron and May can announce today: the FT reports that Britain tried ahead of the summit to win a public assurance it could remain close to the EU's new defence cooperation framework but Paris declined to play ball.

Romania's prime minister-designate Viorica Dancila starts work today on forming her new cabinet, which will be judged abroad almost entirely on whether it will help or hamper the effort to stamp out high-level corruption. Dancila in particular has to prove that she is more than just a proxy for Liviu Dragnea, the leader of the ruling PSD party who faces trial on graft charges. According to Romanian law, Dancila has 10 days to ask parliament for a vote of confidence for her cabinet, which she should win easily given the PSD majority.

The leader of Germany's Social Democrats is sounding more optimistic on whether his party will this weekend give the green light for formal talks with Angela Merkel's conservatives on a new grand coalition. Martin Schulz said he was upbeat after a meeting SPD members in the southern state of Bavaria and taking the temperature in the large western state of North Rhine-Westphalia (NRW), which will send about a quarter of the delegates to Sunday's vote in Bonn. The party's youth wing has other ideas - it is pursuing its "No Grand Coalition" tour to rally delegates to reject the talks.

MARKETS AT 0755 GMT

Underlining the sheer momentum of the world economic expansion into the back end of last year and how synchronised it has become, Chinese fourth quarter growth of 6.8 percent beat forecasts, and industrial output growth of 6.2 percent last month was also ahead of expectations. Together with a U.S. tax-cut-fuelled New Year rally on Wall St, where underlying fourth quarter earnings so far are coming in ahead of the already pretty punchy consensus annual growth of 12 percent, then it’s clear that many investors see a head of steam building. Another surge in the major U.S. stock indices saw another round of record closing highs, with the Dow Jones Industrial Average closing above 26,000 for the first time. MSCI’s all-country world index hit a new lifetime high late Wednesday too, before ebbing slightly today as Japan’s Nikkei underperformed a generally buoyant session elsewhere in Asia. Unusually, the latest rise in stock markets is being accompanied by a rising Vix volatility gauge – which closed just below 12 percent on Wednesday, at its highest since mid-November – as stock indices show signs of accelerating rather than just eking out new highs on thin daily moves. The resulting pressure on the bond is evident too, with 10-year Treasury yields hitting 2.60 percent for the first time since March early on Thursday and 2-year yields hitting another near 10-year high.

European stocks are expected to follow suit, aided by Wednesday’s sharp peak-to-trough retreat in euro/dollar back below $1.22, about which it’s hovering early on Thursday. The dollar’s modest recovery more generally on Wall St’s new found bullishness comes in tandem with a series of European Central Bank speeches insisting the bank won’t rush into any change of policy guidance and will stay accommodative unless there’s some change in the still-benign inflation picture. Some concerns about what a higher euro does to the latter also provided a shot across the bow of the currency market. ECB policymakers Coeure, Weidmann and Villeroy speak at various stages through Thursday. Sterling has pushed higher against both the dollar and the euro, meantime, as Bank of England policymaker Saunders on Wednesday sounded a relatively upbeat and hawkish note about wages, inflation and future interest rate rises. The pound is also eyeing the positive signals surrounding the resumption of Brexit talks later this month, with French President Macron in London for talks with UK PM May on Thursday. Bitcoin steadied just above $11,000, meantime, after a withering two-day slide of more than 25 percent took it below $10,000 for a period on Wednesday amid rising regulatory crackdown fears.

In emerging markets, both Turkish and South African central banks meet today. The lira was 0.3 percent firmer ahead of the meeting at which a Reuters poll expects the key rate to stay on hold at 12.75 percent. The rand was a touch weaker, giving back some of the gains that lifted it to 2-1/2 year highs earlier in the week against a generally weaker dollar. Deputy president Cyril Ramaphosa has welcomed moves taken by prosecutors against companies accused of corruption, saying he wants to “deal with the rot” in some of his toughest comments yet about graft. * Europe corp events: ASOS (LSE: ASC.L - news) trading statement. AB Foods (Primark) Xmas trading update. Q3 Royal Mail Trading, William Hill Trading; Experian trading; Whitbread (Frankfurt: WHF4.F - news) trading

* ECB’s Coeure and Weidmann and IMF chief Lagarde speak in Frankfurt

* ECB member and Bank of France chief Villerory gives annual year ahead speech in Paris

* French President Macron in London for UK-France summit with UK PM May

* Spanish government bond auction

* UK auctions 2023 gilts

* South Africa, Turkey central banks’ policy decisions

* US Q4 earnings: Morgan Stanley (Xetra: 885836 - news) , IBM (NYSE: IBM - news) , Amex, BONY Mellon, PPG, M&T, BB&T, KeyCorp (NYSE: KEY - news) ,

* US Dec housing starts, Jan Philly Fed index, weekly jobless claims

(Editing by x x)