By Padraic Halpin
DUBLIN (Reuters) - U.S. jobs data top economic readouts from around the world next week as global markets begin to return to business as usual following a typically quiet August with the calm broken on Friday by comments from Federal Reserve Chair Janet Yellen.
Speaking at a three-day international gathering of central bankers in Jackson Hole, Wyoming, Yellen said the case for an interest rate rise has strengthened in recent months because of improvements in the labor market and economy.
Recent strong employment data, and signs that inflation is finally beginning to pick up, have encouraged some policymakers to believe rates should rise, if not as soon as September's policy meeting, then at least before the end of the year.
The Fed last raised rates in December, its first hike for nearly a decade.
Yellen did not indicate when the U.S. central bank might do so next, but her comments reinforced the view that it could come later this year. Fed board member Dennis Lockhart raised the possibly of two increases before year-end.
But not all Fed policymakers agree that a rate hike must come soon and their patience may be tested or justified when U.S. non-farm payrolls for August are released on Friday.
"Following two extraordinarily sound labor market reports, we are looking for slightly weaker data in August, yet this does not change the picture of the US economy further approaching full employment," Commerzbank economist Christoph Balz said.
"The report is unlikely to be sufficient to persuade sceptics (in the Fed) that interest rates should be hiked as soon as in September. Signals from the manufacturing ISM are also more likely to support a cautious stance," he said.
The Institute for Supply Management (ISM) index of national factory activity, which expanded at a slower pace in July, comes a day before the jobless figures and alongside snapshots of how the sector is faring in most major economies.
In Europe, a flash reading of euro zone private business activity this week edged up to a seven-month high, more thanks to services than manufacturing firms, but both sectors seem unruffled so far by Britain's vote to leave the European Union.
Next week's publication of euro zone jobless data for July and August's figures for consumer sentiment and inflation, slowly on the rise from anemic levels, come ahead of the next meeting of European Central Bank governors on Sept 8.
BIG BREXIT DATA
Euro zone firms are not the only ones who appear to have taken the Brexit vote largely in their stride. British high streets have been heaving with shoppers and big companies report few signs of distress, for now.
Next week sees further important data for UK mortgage lending, house prices and consumer sentiment, the latter seeing its biggest drop for more than 26 years in July in the wake of the vote.
Thursday's manufacturing Purchasing Managers' Index (PMI) survey, which set alarm bells ringing in July and was cited by the Bank of England when it launched its stimulus program earlier this month, will likely be the most closely watched.
It is expected to have contracted again in August but not as sharply as in July when it shrank at its fastest pace in over 3 years. The corresponding PMI reading for construction arrives a day later.
"It is still very early days in terms of gauging the impact of the referendum on the economy and much could still go wrong," independent research house Oxford Economics' lead UK economist, Andrew Goodwin, said.
"But if next week's higher profile clutch of surveys for August – in particular the consumer confidence barometer and surveys for manufacturing and construction – follow the pattern shown by the other recent indicators then this might encourage us to upgrade our forecast for Q3 GDP growth from the flat outturn that we currently anticipate."
The main interest rate decisions next week will be made in Israel, Colombia and Brazil with all three expected to keep their benchmark rates on hold, according to Reuters polls.
Brazil also reports second quarter GDP numbers on Wednesday that will indicate whether the run up to the Olympic Games handed Latin America's largest economy any sort of boost.
(Editing by Louise Ireland)