By Nichola Saminather
SINGAPORE (Reuters) - Sterling retreated on Thursday on fears that Prime Minister Theresa May could lose control of parliament in Britain's June 8 election, while conflicting signals on the health of China's manufacturing sector kept most Asian stock markets in check.
European stocks, however, looked set to open on a more positive note, with financial spreadbetter CMC Markets expecting major markets to start the day up about 0.1 percent.
Sterling fell 0.1 percent to $1.2877 after a YouGov poll showed May could be well short of the number of seats needed to form a government, raising the prospect of political turmoil just as formal Brexit talks begin.
Other polls, however, show May winning a big majority.
The currency hit a near six-week low on Wednesday but recovered to close higher.
MSCI's broadest index of Asia-Pacific shares outside Japan was flat after four sessions of losses as investors took profits after stocks hit a two-year high last week and as economic and geopolitical concerns continued to weigh on sentiment.
Chinese shares fell as much as 0.5 percent after a private survey showed the country's manufacturing activity contracted in May for the first time in 11 months. The findings contrasted with official data on Wednesday which suggested growth remained steady.
South Korea's KOSPI fell 0.1 percent and the Korean won fell 0.2 percent to 1,120.67 won to the dollar after data showing factory activity shrank for the 10th straight month.
However, losses were limited by other data showing rising exports in May.
Factories across much of Asia ran into a soft patch in May as export demand slowed, according to business surveys, but analysts said the weakness was likely to be temporary amid signs of steady improvement in the global economy.
Manufacturing activity continued to improve in most of the region -- albeit at a more modest pace -- and business confidence remained strong overall.
"Most of emerging Asia's manufacturing PMIs slipped in May but we doubt this marks the start of a significant downturn in Asian manufacturing," Krystal Tan, Asia economist at Capital Economics, wrote in a note.
Japan's Nikkei advanced 1 percent after data showed recurring first-quarter corporate profits were the highest on record for the January to March period.
An increase in capital expenditure in the first quarter added to a raft of recent data pointing to economic expansion, while manufacturing growth in Japan also rose to a three-month high, according to a business survey.
Overnight, Wall Street closed slightly lower as financials lost ground after JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC) warned of revenue weakness in the current quarter, but gains in defensive plays offset the decline.
All three major U.S. indexes ended May in positive territory. (N)
The dollar gained after touching a near two-week low against the yen overnight.
It was up 0.4 percent to 110.06 yen on Thursday, its first positive session in five, but concerns about U.S. politics capped gains.
President Donald Trump's administration has been the focus of independent investigations by the Federal Bureau of Investigation and several congressional panels over alleged Russian meddling in the 2016 presidential election and potential collusion by the Trump campaign.
The House intelligence committee on Wednesday approved subpoenas for Trump's former national security advisor and personal lawyer in connected with the Russian meddling probe.
A decision by Trump on whether the U.S. will remain in a global pact to fight climate change, due at 3 p.m. EDT (1900 GMT) is also keeping markets on edge.
A source close to the matter said he was preparing to pull out of the deal.
The dollar index, which tracks the greenback against a basket of six major peers, inched up 0.1 percent to 97.003 after posting a 0.4 percent loss on Wednesday.
Clouding the picture further was a mixed bag of economic data on Wednesday.
Pending home sales fell for a second straight month in April, hindered by a lack of supply, while an index of U.S. Midwest manufacturing activity rose in May.
The Chinese yuan continued its recent run of gains, strengthening for a fourth straight session after news that authorities are tweaking their formula for the daily reference rate in a bid to quash persistent depreciation pressure. [CNY/]
It was last trading at 6.7948 per dollar, close to its strongest level since November hit earlier in the session, after the People's Bank of China set the midpoint at 6.8090.
The euro was flat at $1.12405.
In commodities, oil prices advanced on a report that showed U.S. crude stockpiles had fallen more than expected.
That came on the heels of Wednesday's steep declines driven by after an increase in Libyan output that helped boost monthly OPEC production for the first time this year.
Global benchmark Brent advanced 1.7 percent to $51.16 a barrel after slumping 3 percent on Wednesday.
U.S. crude rose 0.9 percent to $48.75, after plunging 2.7 percent in the previous session.
Gold rose 0.1 percent to $1,266.18 an ounce.