* European markets lifted by strong German-led euro zone PMI's
* Chinese manufacturing survey disappoints, index drops to 49.6
* Shanghai shares soften, Australian dollar, metals takes a hit
* Sterling strengthened, Canadian dollar dented by rate outlooks
By Marc Jones
LONDON, Jan 23 (Reuters) - Investors looked to euro zone data to lift their spirits on Thursday after surprisingly soft Chinese manufacturing figures hit commodity-linked currencies and other growth-sensitive assets in Asia.
Euro zone-wide purchasing manager data, led by another impressive performance by Germany, supported the recent hopes that the bloc is finally putting the worst of its debt crisis worries behind it.
European shares were virtually unchanged near 5-1/2 year highs in early deals, with the better than expected PMI data offset by China's first drop in factory activity in six months.
China's flash Markit/HSBC Purchasing Managers' Index (PMI) fell to 49.6 in January, from December's 50.5, suggesting a mild slowdown at the end of 2013 has continued into the new year.
"The weak flash PMI will inevitably inflame China slowdown worries, but this is only one data point," said Linus Yip, a strategist with First Shanghai Securities in Hong Kong.
"If more data start to also show a deeper slowdown, Beijing may be forced to stimulate in order to maintain a stable basis for growth that they need to execute reforms."
Shanghai shares slipped 0.5 percent, leading MSCI's all-world index to its biggest fall in over a week.
In Europe the benchmark FTSEurofirst 300 dipped 0.1 percent early on despite gains in the euro zone periphery, but then turned marginally positive as stronger data lifted the mood.
Industrial morale data from France came in steady alongside the brighter French and German PMI numbers , teeing investors up nicely for the more comprehensive euro zone-wide figures.
The euro zone composite PMI jumped to 53.2 in January, from 52.1, led mostly by the strength in Germany. The numbers were well above forecast also came alongside a round of unemployment figures.
"We remain highly overweight (on European equities), the only thing is we look for profit taking in due time but it is not the moment," said Didier Duret, Chief Investment Officer at ABN Amro.
The euro, which has dropped almost 2 percent over the last three weeks, bounded up almost a full cent to $1.3620 after the initial flurry of French and German data.
The Swiss franc was also looking more attractive after its government announced plans to force banks to hold more capital.
The currency worst hit by the weak Chinese data was the Australian dollar, which shed a third of a U.S. cent to $0.8795 as speculators sold it as a liquid proxy for growth in the Asian region.
MSCI's broadest index of Asia-Pacific shares outside Japan also lost 1.1 percent, while Australia's main index dropped 1 percent.
Japan's Nikkei surrendered early gains to be down 0.5 percent on the day. The news from Japan had been better, with a Reuters survey of business sentiment improving for a third straight month in January to reach a high last seen in 2010 as optimists far outnumbered pessimists.
For other currencies, it was all about central bank expectations. Sterling held firm at $1.6562 having surged after a sharp fall in UK unemployment stoked speculation the Bank of England would have to bring forward the day when it starts hiking interest rates.
Across the Atlantic, the Canadian dollar fell further in the wake of the Bank of Canada's warning that it was growing more concerned about low inflation, leaving the door wide open to a cut in interest rates there.
In commodity markets, the Chinese data led to a general softness in prices. Growth-attuned industrial metals zinc , aluminium and copper were hardest hit.
Gold lost also ground after its repeated failure to break above key technical resistance at $1,260 an ounce prompted investors to take profits. Spot gold was off at $1,235.40 per ounce, leaving behind Monday's peak of $1,259.85.
Crude oil eased after an industry report showed a sharp rise in crude stockpiles in the U.S. - the world's biggest oil consumer. U.S. crude oil futures dipped 24 cents to $96.49 a barrel, after jumping more than a dollar overnight. Brent oil for March delivery lost 20 cents to $108.07.