* European shares up over one percent after PMI data
* U.S. stock futures signal Wall St recovery
* Safe haven bonds gain as Cyprus fears recede
* Euro holds steady as focus turns to ECB meeting
By Richard Hubbard
London, April 2 European shares recovered from a
two-week slide on Tuesday and the euro steadied as fears of a
resurgence in the region's debt crisis emanating from Cyprus
A slight improvement in the euro zone Purchasing Managers'
Index, which tracks the region's manufacturing economy, also
supported sentiment. The PMI for March was 46.8, still showing
contraction but up from a preliminary estimate of 46.6.
Europe's FTSEurofirst 300 index gained over one
percent by midday, retracing more than two thirds of a pull-back
that began in mid-March, when Cyprus's bailout plan raised fears
of a bank run in the euro zone's most indebted countries.
Across Europe Paris's CAC-40 and Frankfurt's DAX
were up 1.2 percent, while Spain's IBEX gained
0.7 percent and Italy's FTSE MIB 0.7 percent.
"We're re-testing previous highs on European indices and
then there's just a little bit of a short squeeze going on,"
said Matt Basi, head of UK sales trading at CMC Markets.
London's main FTSE 100 index also gained 1.0 percent
amid the buying helped by a separate UK PMI index that came in
at 48.3, just above February's surprisingly poor reading of
"Although the manufacturing PMI is still pointing to
contraction, at least it not going the wrong way and we are
still creeping higher," said Alastair Winter, chief economist at
However, weaker-than-expected manufacturing data from China
and the United States on Monday, which highlighted the fragility
of the global economic recovery, left the broad MSCI world
equity index with only a modest gain of 0.2
The strong rise in European equities did help U.S. stock
index futures to rebound from their previous day's losses,
putting the benchmark S&P 500 again within striking
distance of its all-time intraday high of 1,576.09.
Wall Street had fallen sharply after the U.S. factory data,
which was seen as suggesting a cooling economy, though any moves
this week may be limited by the approach of the closely watched
U.S. monthly payrolls report on Friday.
EURO HOLDS STEADY
As fears of a major financial meltdown emanating from Cyprus
began to recede, German government bond futures fell and Italian
and Spanish bonds made small gains, while the common currency
held steady against the dollar.
Under an international bailout agreed just over a week ago,
Cyprus imposed capital controls and made depositors with more
than 100,000 euros ($128,500) in its major banks contribute to
the rescue deal.
The deal was the first in euro zone history to make savers
share the burden. However, after Cyprus's banks reopened in
orderly fashion on Thursday, fears of bank runs across the euro
As a result German Bund futures hit a low of
145.12, down 37 ticks on the day, with traders closing out
positions used to hedge against contagion from Cyprus hitting
the region's other struggling states such as Spain and Italy.
Italian 10-year yields were down 4 basis
points on the day at 4.7 percent while equivalent Spanish yields
were down by the same amount at 5.02 percent.
Italian yields have risen 21 bps since March 22, due in part
to its struggle to form a government after elections in February
failed to produce a clear winner.
Italy's president acknowledged on Saturday that he had
limited scope to force divided political parties to find a
solution, but ruled out standing down early to make way for new
In currency market the euro was flat against a mostly steady
dollar to trade around $1.2840, and remained well above
last week's four-month low of $1.2750.
Investors are cautious about making any major moves on the
single currency before a European Central Bank policy meeting on
Interest rates are expected to be left on hold at the
meeting though bank boss Mario Draghi could express concern
about the euro zone's outlook at a subsequent news conference.
"As the fundamental outlook for the euro region turns
increasingly bleak, the ECB remains poised to strike a dovish
tone for monetary policy," said David Song, currency analyst at
The dollar, which slid on Monday's weak factory data, was
also steady against a basket of currencies. It gained
support from a weaker yen, which slipped on talk of monetary
easing in Japan when the central bank meets later this week.
Oil and copper, both sensitive to industrial demand, fell
initially as investors focused on Monday's official Chinese
factory activity report which, like the U.S. figures, was below
But oil prices recovered modestly from their lows when Saudi
Oil Minister Ali Al-Naimi said demand was expected to rise in
the next few months as demand from Asia gains strength.
Brent climbed back above $111 a barrel to around
$111.55 after the Saudi minister's comments while U.S. crude
futures were down 12 cents to $96.95 a barrel as a
pipeline leak in Arkansas weighed on demand.
Gold was steady just under $1,600 an ounce after it had
rallied to a 1-month peak in March on worries about stability in
Europe as politicians scrambled to clinch the Cyprus bailout.