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 Britain's FTSE 100 <.FTSE> was one of only a couple of the
region's bourses to show gains after the release of promising bank
stress tests, with record low unemployment data from Germany feeding
fears that ECB stimulus hopes could be overdone. [.EU]
U.S. stocks were set to open up 0.3 percent <ESc1>, building on
Asian gains after tentative signs that a slowdown in China was
stabilizing.
Europe's bond yields ticked higher and the single currency bounced
off a 7-1/2-month low on concerns that the ECB may not deliver all
the stimulus on Thursday that investors have come to expect.
Markets are already pricing in a deposit rate cut and an increase in
the size, scope and length of the ECB's trillion-euro bond buying
program. Analysts say it would be hard for ECB President Mario
Draghi to surprise markets.
 "The big question is if Draghi can surprise the markets, given that
ECB by its own comments has contributed to quite stretched market
expectations," SEB head of fixed income research, Jussi Hiljanen,
said.
The FTSEurofirst 300 <.FTEU3> was up slightly on the day, with the
rally in the FTSE offsetting falls in Germany's DAX <.GDAXI> and
France's CAC 40 <.FCHI>.
European stocks failed to gain much sustained impetus from Chinese
data which sent MSCI's broadest index of Asia-Pacific shares outside
Japan <.MIAPJ0000PUS> up 1.8 percent.
China's official Purchasing Managers' Index reached a three-year low
in November. But the private Caixin/Markit China Manufacturing PMI
showed factory activity contracted at a slower pace than in October,
fuelling hopes the economy may have been bolstered by government
support.
In Europe's largest economy, Germany, there were further signs of a
turnaround in fortunes, with unemployment dropping to the lowest
level since reunification in 1990.
CMC Markets' Michael Hewson said that these sorts of signs of life
in the euro zone economy could limit the aggressiveness of ECB
stimulus.
"Quite simply there is a risk that market expectations of what the
ECB will do this week are based on the premise of shock and awe,
when in reality they could get something more akin to bubble and
squeak," he said in a note to clients.
This was certainly the feeling among bond and currency investors,
with German yields up for the second straight day, coming off a
one-month low hit on Friday, and the euro rising to $1.0593 <EUR=>,
after dropping to a 7 1/2-month low of $1.0557 on Monday.
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China's yuan was flat in onshore trading <CNY=CFXS>, after the
International Monetary Fund on Monday admitted the yuan into its
Special Drawing Rights (SDR) basket alongside the dollar, euro,
pound sterling and yen.
The widely expected move was a milestone in China's integration into
global finances and a nod of approval to the country's reforms.
The dollar index <.DXY>, which tracks the greenback against a basket
of six major rival currencies, edged down to 100.00. That still left
it within sight of the 100.39 the index hit in March, its highest
for more than 12 years, on expectations Federal Reserve will raise
U.S. interest rates later this month.
By contrast, the Reserve Bank of Australia held rates steady at 2
percent at its policy meeting. The Australian dollar rose about 0.7
percent after the decision, to $0.7277 <AUD=D4>.
Australian shares <.AJXO> rallied 1.9 percent, extending gains,
after trade data showed Australia's economy gained last quarter from
a rebound in resource exports.
U.S. crude oil prices regained some ground after volatile trading
overnight, when they first rallied and then erased gains after a
survey estimated higher OPEC output. U.S. crude <CLc1> added 0.5
percent to $41.88 a barrel.
Brent crude futures <LCOc1> were up 0.5 percent to $44.82.
Spot gold <XAU=> was up about 0.6 percent at $1,068.90 an ounce,
getting a reprieve as the recently robust dollar weakened and helped
it move away from a nearly six-year low of $1,052.46 plumbed last
week.
(Additional reporting by Marius Zaharia in London, Lisa Twaronite in
London, and Xiaoyi Shao and Nick Heath in Beijing; Editing by Louise
Ireland)
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