By Richard Hubbard
LONDON (Reuters) - The euro hit a six-week high and shares rose on Monday as signs of growth in China and a slower contraction in Europe lifted demand but worries over the U.S. budget crisis capped gains.
The latest readings from both official and private sector surveys of China's vast manufacturing sector showed activity picked up November, adding to evidence the economy is reviving after seven quarters of slowing growth.
While final readings of the euro zone's Manufacturing Purchasing Managers Index (PMI) for November showed factory activity declining at a slower rate, though this still leaves the region on course for its worst quarter since early 2009.
"We are in an environment where the big picture risks are still there; the U.S. fiscal cliff, the euro zone and China - on two of those (China and the euro zone) arguably things have been improving," Philip Poole, global head of macro investment strategy at HSBC Global Asset Management, said.
MSCI world equity index edged up about 0.1 percent to 333 points after the PMI data helped by a small gain in MSCI's broadest index of Asia-Pacific shares outside Japan.
Data also showed British manufacturing activity shrank much less than expected in November, although the sector remains in a precarious state as new orders edged down.
However, investors are cautious about reading too much from the numbers while there is no solution in Washington on how to avoid a package of tax rises and spending cuts due in early 2013 which could send the economy back into recession.
In Europe, the FTSE Eurofirst 300 index of top European shares rose 0.3 percent to 1,123.15 points with London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX between 0.25 and 0.5 percent higher.
Earlier gains in Asia were kept in check by sluggish data on retail sales and labour demand in Australia, and weak factory activity levels in the major exporting nations of South Korea and Taiwan.
The euro climbed to $1.3048, its highest level since October 23, before paring gains to trade about 0.4 percent higher at $1.3039 ahead of a euro zone finance ministers meeting where they will assess the latest plan to help Greece.
German Chancellor Angela Merkel said on Sunday Greece's creditors may look at writing down more of its debt, a move that would make the country's debt burden more sustainable.
Falls in Spanish and Italian bond yields as investors become more confident in buying euro zone debt added to support for the single currency, as did the Greek government's plans to repurchase up to 10 billion euros of its outstanding debt.
Spanish 10-year yields dropped 10 basis points to 5.24 percent, while similar Italian yields were also lower, and low-risk German debt prices retreated.
Greece said on Monday it would buy back its bonds through a Dutch auction process, and set a price range above most market expectations.
"As long as we see a successful buyback, then it will close this mini-chapter for Greece," said Sarah Hewin, senior economist at Standard Chartered Bank.
"It will allow the release of the next bailout tranche, it will keep the IMF involved, which is key, and it will inject some funding into an economy which is crying out for it."
The price of the Greek government's 2023 bond rose 2.675 points to 37.867 after the announcement.
Oil and other commodity prices were caught in narrow ranges, underpinned by the firm Chinese data, but concerns about the U.S. budget crisis limited any upward moves.
U.S. crude futures were down 19 cents to $88.72 a barrel and Brent fell 5 cents to $111.18, while London copper was little changed at $9,990 a tonne.
Spot gold edged up 0.2 percent at about $1,718.90 an ounce.
(Additional reporting by David Brett; Editing by Anna Willard)