LONDON European shares extended their strongest run of the year on Tuesday and the euro touched its lowest in almost three years against the yen, as data from around the region bolstered the case for more ECB stimulus next week.
Wall Street was expected to rebound 0.6 percent when it resumes, with a deluge of data to feed the debate on whether the Federal Reserve will be able to squeeze up U.S. interest rates any further this year.
Asia had risen as weak China data fanned hopes for more stimulus there, and it was the same story in Europe as euro zone manufacturing activity expanded at its weakest pace for a year despite more deep discounting and slumped to a near three-year low in Britain.
The Purchasing Managers' Index (PMI) data will make particularly gloomy reading for the European Central Bank, a day after it was confirmed deflation is back in the euro zone and just over a week before its next meeting.
Pressure for firm action is building, and the expectation is that it will cut its already negative deposit rate by at least another 10 basis points when it meets next Thursday and add to its 1.5 trillion euro bond buying scheme.
Those hopes helped Germany's DAX jump 1.4 percent and France's CAC 40 climb 0.6 percent, while Britain's FTSE 100 gained 0.5 percent as talk of a bid battle for the London Stock Exchange helped offset an 11 percent beating for Barclays' shares.
In the currency markets, the euro steadied having hit a one-month low after the PMI data, while the yen was still hot to the touch having just had its best month against the dollar since 2008 and risen to its highest against the euro since April 2013.
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, 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 was an additional boost for commodity stocks and 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 a fresh round bond buying.
CAUTION FRAGILE CHINA
U.S. manufacturing and services sector data due out at 1445 GMT (0945 E.T.) will feed the constantly evolving view 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 add 2 percent to their near 30 percent surge since mid-January.
MSCI's broadest index of Asia-Pacific shares outside Japan had ended up 1.3 percent too, as Chinese stocks, 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 erased early losses to end 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. It had been as elevated as 122.09, the highest since April 2013.
The dollar was buying 113 yen, edging up about 0.4 percent, while the Australian dollar added 0.3 percent against its U.S. counterpart to $0.7163 after the Reserve Bank of Australia left its rates at a record low 2 percent.
Gold also rose to $1,240 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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