Portugal Colonial - Pound rallies as UK set to unveil spending plans

Sterling rallied 1.1 percent to $1.1293 ahead of Jeremy Hunt's fiscal announcement due 1000 GMT.

Hunt became chancellor of the exchequer Friday after Prime Minister Liz Truss sacked Kwasi Kwarteng as she battles to save her political career just weeks after taking the keys to Downing Street.

Hunt is tipped to tear up Truss and Kwarteng's plan of avoiding spending cuts to pay for tax cuts, most of which have been scrapped following markets turmoil.

"It does indicate that they are moving back to some degree of fiscal probity and employing a slightly more prudent fiscal outlook," said Peter Kinsella, of Union Bancaire Privee UBP SA.

The pound recovered strongly having sunk Friday owing to the uncertainty in Westminster, while a news conference by Truss did very little to reassure nervous investors.

UK government bonds yields also slid on the first trading day since the Bank of England ended support put in place in response to turmoil caused by Kwarteng's mini-budget.

Yields had soared following the budget, prompting the BoE to carry out emergency buying of UK government bonds, or gilts.

"There is no question that recent events have shattered confidence in the... current government, and trust once foregone is usually very difficult to get back," said CMC Markets' Michael Hewson.

"The wider question now is what happens next with respect to any new budget, and whether new Chancellor Jeremy Hunt can stabilise the ship at a time when global interest rates are rising anyway."

The calm also lifted equities, with London in positive territory in the morning. There were also gains in Frankfurt and Paris.

- China disappointment -

Asia started the week in mixed fashion as Friday's rally petered out.

The latest strong US inflation reading ramped up bets that the Federal Reserve will hike borrowing costs by 75 basis points twice more before the end of the year -- stoking concerns the world's top economy will flip into a recession.

All three main indices on Wall Street finished sharply lower Friday.

There was a little disappointment among investors after Chinese President Xi Jinping at the weekend reasserted his commitment to the zero-Covid strategy of lockdowns that has hammered the economy this year.

"We expect that the existing Covid measures, that is the number of Covid tests, quarantine days, etc, will remain the same after the Party Congress," said Iris Pang at ING.

"This will continue to put fiscal pressure on local governments, and when the number of Covid cases increase, we should keep seeing localised lockdowns."

Beijing has also delayed the release of anticipated economic growth figures -- which analysts had expected to be some of its weakest quarterly growth figures since 2020, as the economy is hobbled by Covid-19 restrictions and a real estate crisis.

Traders are also keeping tabs on looming earnings reports, with expectations that higher rates and prices will have eaten into companies' bottom lines.

Eyes are also on Tokyo as the yen sits around a three-decade low against the dollar owing to US rate hike expectations and the Bank of Japan's refusal to tighten monetary policy, citing a need to support the economy.

The yen is approaching 150 to the dollar for the first time since 1990, but while officials have said they are keeping tabs on developments, they have yet to intervene in markets for a second time, having done so last month.

- Key figures around 0945 GMT -

London - FTSE 100: UP 0.5 percent at 6,892.30 points

Frankfurt - DAX: UP 0.6 percent at 12,506.50

Paris - CAC 40: UP 0.6 percent at 5,967.87

EURO STOXX 50: UP 0.5 percent at 3,399.48

Tokyo - Nikkei 225: DOWN 1.2 percent at 26,775.79 (close)

Hong Kong - Hang Seng Index: UP 0.2 percent at 16,612.90 (close)

Shanghai - Composite: UP 0.4 percent at 3,084.94 (close)

New York - Dow: DOWN 1.3 percent at 29,634.83 (close)

Pound/dollar: UP at $1.1277 from $1.1172 Friday

Dollar/yen: UP at 148.68 yen from 148.67 yen

Euro/dollar: UP at $0.9757 from $0.9722

Euro/pound: DOWN at 86.51 pence from 87.02 pence

West Texas Intermediate: UP 0.1 percent at $85.69 per barrel

Brent North Sea crude: UP 0.3 percent at $91.87 per barrel

Nogueira--PC