LONDON, Feb 5 (Reuters) - European shares, oil and the euro
bounced back on Tuesday from a selloff caused by rising
political risks in southern Europe, as data confirmed the
region's economy is showing signs of recovery.
The euro, which had taken the brunt of the selling and
fallen from a high of over $1.37 at the end of last week
to under $1.35 on Monday, rose 0.3 percent to trade at $1.3560.
European shares followed a similar path, recovering from the
Monday sell off, while U.S. stock index futures indicated Wall
Street would rebound from its worst daily session since November
when trading resumed later on Tuesday.
Analysts saw the market's gyrations as a necessary stage in
a rally linked to signs of increasing euro zone economic
stability and an improving global outlook, underpinned by the
easier monetary policies of major central banks.
"Our working hypothesis remains that, after the correction,
the trends in place before will continue, as the two main
drivers are still there - namely central banks continuing to
inject liquidity and more and more proof of an economic
recovery," said Philippe Gijsels, head of research at BNP
Paribas Fortis Global Markets in Brussels.
The markets regained their composure on Tuesday after data
confirmed the euro zone's still struggling economy was starting
to turn around.
Markit's Eurozone Composite PMI, which gauges business
activity across thousands of companies and is seen as good gauge
of future growth, rose in January to a 10-month high of 48.6 -
though this still means the region's economy is contracting.
"The euro zone is showing clear signs of healing, with the
downturn easing sharply in January and the region moving closer
to stabilisation in the first quarter," said Chris Williamson,
chief economist at Markit.
But the data also highlighted a growing divergence in the
euro zone between the performance of its biggest economy,
Germany, and those of other partners, leaving some doubts about
the region's prospects.
Markit's composite German PMI chalked up its biggest
one-month rise since August 2009, reaching its highest since
June 2011. But in neighbouring France it fell to its lowest
level in nearly four years.
"The downturn we saw at the end of last year is starting to
peter out, but I don't think we're going to see any spectacular
growth yet," said Peter Westaway, chief European economist at
Vanguard Asset Management.
After the data, the broad FTSE Eurofirst 300 index
of top European shares was up 0.6 percent while London's FTSE
100, Paris's CAC-40 and Frankfurt's DAX
were between 0.3 and one percent higher.
Analysts said the euro and equity markets could see further
volatility on Thursday when the European Central Bank holds its
monthly policy meeting and President Mario Draghi is due to
address a news conference.
None of the 75 economists surveyed in a Reuters poll last
week expect the ECB to cut rates from their record low of 0.75
percent at Thursday's policy meeting, but Draghi may be pressed
to comment on the recent sharp rise in the euro.
MSCI's world equity index was down around
0.1 percent reflecting an earlier sell-off across Asia when
investors joined in the global correction in prices and ignored
positive economic news from China.
The HSBC China services purchasing managers' index rose to a
four-month high of 54 in January, underlining the strengthening
momentum in the world's second-biggest economy, which is
expected to grow 8.1 percent this year.
The MSCI index of Asia-Pacific shares outside Japan
was down 0.9 percent, led by a steep 1.7 percent
fall in Hong Kong shares, after the pan-Asian index had
climbed to an 18-month high on Monday.
Investors will next look at data from the vast U.S. services
sector, due later on Tuesday, to gauge the monetary policy
outlook after recent releases have painted a mostly upbeat
picture of the world's largest economy.
Bond markets were also stabilising on Tuesday after the
sudden upsurge in political worries about Spain and Italy had
caused a sharp rise in yields on peripheral euro zone debt and
fresh demand for safe-haven German government bonds.
Spanish 10-year government bond yields eased
back six basis points to 5.38 percent, while equivalent Italian
yields were a four ticks lower at 4.43 percent.
German Bunds meanwhile rose slightly to be up four basis
points at 1.67 percent.
Commodity markets were more mixed. Brent crude oil,
which has dropped almost 1.5 percent since the start of the
month, rose over $1 a barrel to $116.75 while growth-attuned
copper slipped 0.2 percent to 8,290 a tonne.
Platinum and palladium consolidated around multi-month
highs, as traders chose to sell into the rally to lock in
profits, while gold was again little changed.
Palladium dropped 0.3 percent to $753.54 an ounce,
having peaked at a 17-month high of $759.75 an ounce on Monday.
Platinum was up 0.2 percent at $1,695.99 an ounce, off a
four-month high of $1,705.25 hit in the previous session.
Gold, which has been trapped in a tight $1,660 to $1,680
range since late last week, again saw little movement with
investors increasingly wondering whether its 12-year rally is
Monetary stimulus was a driver of gold's rise in the last
few years, and an improving U.S. economy has stirred thoughts
that the Federal Reserve might curtail the bond-buying that has
dominated its support efforts.
"People are mostly waiting for more data from the United
States to assess how the economy is and whether quantitative
easing will continue," said Ronald Leung, a dealer at Lee Cheong
Gold Dealers in Hong Kong.