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 Asia had risen after weak China data fanned stimulus hopes there,
and the same pattern emerged in Europe as euro zone manufacturing
activity expanded at its weakest pace for a year despite more deep
discounting.
Markit's Purchasing Managers' Index (PMI) will make gloomy reading
for the European Central Bank, a day after it was confirmed
deflation is back in the bloc and a week before its next meeting
where pressure for action is building.
The hopes for the central bank helped Germany's DAX <.GDAXI> jump
1.8 percent and France's CAC 40 <.FCHI> climb 0.9 percent, while
Britain's FTSE 100 <.FTSE> gained 0.7 percent as talk of a bid
battle for the London Stock Exchange helped offset an 11 percent
tumble in Barclays shares <BARC.L>.
In the currency markets, the euro slipped to a one-month low after
the PMI data while the yen was still hot to the touch having
completed its best month against the dollar <JPY=> since 2008 and
reached its highest against the euro <EURJPY=> since April 2013
overnight.
 The gains came despite Japan earlier becoming the first G7 economy
to sell a 10-year government bond at a negative yield, something
that would usually make the currency less attractive as investors
are effectively paying rather than getting paid to hold them.
"The yen strength right now is largely being dominated by (weak)
risk appetite," said UniCredit's Global Head of FX Strategy
Vasileios Gkionakis.
On the euro he added: "There is no doubt the low inflation and the
soft economic data is keeping the pressure on the ECB to do
something next week."
There was a glimmer of hope for the central bankers though as Brent
oil prices <LCOc1>, the big downward force on inflation for the last
two years, hit their highest since the start of the year after their
best month since August.
It helped German Bund yields nudge off 10-month lows after the
previous day's deeper than expected fall in euro zone consumer
prices had triggered fresh bond buying as inflation expectations
<EUIL5YF5Y=R> hit their lowest on record.
The European Central Bank is expected to cut its deposit rate by at
least another 10 basis points when it meets next Thursday <ECBWATCH>
and add to its 1.5 trillion euro bond buying scheme.
CAUTION FRAGILE CHINA
Futures markets were pointing to a 0.7 percent rebound for Wall
Street when it resumes, having dropped below its 50-day moving
average on Monday.
U.S. manufacturing and services sector data <ECONG7> will feed the
constantly evolving view <0#FF:> of whether the Federal Reserve can
continue to squeeze up interest rates in the world's largest economy
this year.
The latest rise in oil helped Russian dollar-denominated shares
<.IRTS> add 2 percent to their near 30 percent surge since
mid-January.
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MSCI's broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> had ended up 1.3 percent too, as Chinese stocks,
<.CSI300> which are nudging their lowest in a year, climbed 1.8
percent after Monday's PBOC cut in banks' reserve requirements.
There was a widespread feeling more stimulus is likely too when
Beijing announces a new 5-year plan for the economy at the weekend.
Official data on Tuesday showed activity in the country's giant
manufacturing sector shrank for a seventh straight month in February
and faster than expected.
The services sector did expand, but at the slowest pace since late
2008 and the private Caixin/Markit China Manufacturing PMI came in
short of both market expectations and the previous month's reading.
"We think the PBOC easing is consistent with continued
weaker-than-expected economic activity and downside risks to
growth," wrote Jian Chang, an analyst at Barclays. "It should help
to support market sentiment in the near term."
Japan's Nikkei <.N225> erased early losses to ended up 0.4 percent
although the yen's hot streak continued to drag back a market that
has slumped 15 percent this year.
Against the euro, the perceived safe-haven yen gave back some
territory as the PMI dust settled to leave it at 123.07 yen
<EURJPY=R>. It had been as elevated as 122.09, the highest since
April 2013.
The dollar was buying 113 yen <JPY=>, edging up about 0.4 percent,
while the Australian dollar added 0.2 percent against its U.S.
counterpart to $0.7152 <AUD=D4> after the Reserve Bank of Australia
left its rates at a record low 2 percent.
Gold also rose to $1,240 <XAU=> an ounce as it built on its biggest
monthly gain in four years. Its appeal is being boosted by the
concerns over the global economy and the spread of negative
government bond yields in Europe and Japan.
(Additional reporting by Lisa Twaronite in Tokyo; Editing by Janet
Lawrence)
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