RPT-GLOBAL MARKETS WEEKAHEAD-Central banks to test investors

By Jeremy Gaunt, European Investment Correspondent

LONDON, Oct 30 - Investors are fixated about when stimulative monetary policy will come to an end, expecting it to be the finale for a sweet period on financial markets that has seen world stocks rise as much as 75 percent in seven months.

With that in mind, the coming week should be striking, with a feast of events ahead that touch directly on the issue.

There are meetings at major central banks, including the Federal Reserve and European Central Bank, as well minutes from the past meetings of others. Then there is a G20 finance ministers meeting.

To top it off, investors will be have to digest the monthly U.S. jobs figures, which is always a sensitive report and goes directly to another investor fixation, the state of the world's largest economy.

All this comes as investors are showing signs of fatigue, at least in the short term, breaking down the patterns that have dominated markets since March.

World equities as measured by MSCI <.MIWD00000PUS> were likely to end Friday with their second weekly loss in a row and only minimal month gains.

The dollar, too, was heading for one of its better weeks of late against major currencies <.DXY>.

Some of this may be a matter of profit taking and -- at least to judge from Reuters latest asset allocation polls -- large investors may see any weakness as a buying opportunity.

The polls showed leading investors rebuilding their equity holdings during October from a month earlier. [ID:nLAG005871]

But investors have also entered a period of bumpy trading where the assumption is no longer that equities will rise.

"There is still not that much confidence in the upswing," said Klaus Wiener, head of research at Generali Investments. "The strong rally from the low is over. Until there is some certainty, markets will be more volatile."

BANK BONANAZA

One of the uncertainties is the future of the liquidity that has been behind much of this year's financial market recovery in the form of both ultra-low interest rates and so-called quantitative easing, or QE -- essentially printing money.

Investors have long known the time will come when central banks begin drawing some of this liquidity back in.

At that point, the market climate may not be so conducive for riskier assets such as equities, which have benefited from plentiful cash or for safer investments such as government bonds, which have been underpinned lately by the QE programmes.

The first stirrings have already been seen, with rate hikes in Australia and Norway and with policy exits being discussed elsewhere.

How far along this has gone should become evident in the week ahead when a remarkable confluence of central bank activity takes place.

As well as the Fed and ECB, there will be similar policy meetings at the Bank of England and Royal Bank of Australia. Minutes will also be published of the last meetings of the Bank of Japan and Sweden's Riksbank.

The Fed and BoE are likely to stick to their current stance, but the ECB may be ready to at least think about unwinding some of its QE, just as the BOJ has said it will. Australia, meanwhile, could hike again.

"The general run of central bank comments now is all along the lines of 'we have missed that bullet, we can begin to normalise'," said Ian Bright, an economist at ING, referring to last year's scare of a financial meltdown.

GAUGING GROWTH

The G20 finance ministers' meeting in Scotland at the end of next week may well be an opportunity for investors to see the degree to which all this is being coordinated and monitored.

It could also be a test of whether the G20 unity manifest during the worst of the crisis will survive now that national economic performances are diverging more markedly and domestic political concerns are less uniform.

Not surprisingly, economic recovery remains key to investor sentiment. Wall Street put in its best one-day percentage gain in three months on Thursday after GDP data showing the U.S. economy had grown in the third quarter for the first time in more than a year.

Next week's big indicator will be the U.S. jobs data on Friday. Analysts are still expecting jobs to have been lost during October, but see a significant decline in the monthly number of losses.

"GDP turned around sentiment. If we get a better labour market report, markets can improve," said Generali's Wiener. (To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Hub click on http://blogs.reuters.com/hedgehub)