German data leads Europe shares higher, dollar steadies

By Nigel Stephenson

LONDON (Reuters) - European shares rose on Monday, led higher by Germany after upbeat factory activity, while the dollar steadied following signs the U.S. economy may be emerging from a recent soft patch.

Euro zone powerhouse Germany's manufacturing sector lost some momentum in April but continued to expand while in France the sector's final PMI showed activity contracting and falling for a 12th successive month.

The pan-European FTSEurofirst 300 equity index was up 0.4 percent, adding to earlier meager gains after the data.

Germany's DAX index rose 0.8 percent, outpacing France's CAC, which was up just 0.3 percent.

Christian Henke, a strategist with IG, said the German PMI data could be the catalyst for a rebound in the DAX after its recent correction.

"It's just a correction, nothing more," he said.

Factory activity in China, the world's second-largest economy, saw its fastest drop in a year in April as new orders shrank, according to HSBC/Markit Purchasing Managers' Index. It fell to 48.9 last month from 49.6 ion March.

However, Chinese shares closed higher as investors saw the data as hardening the case for fresh stimulus from Beijing.

The CSI 300 index of the largest listed companies in Shanghai and Shenzhen rose 0.8 percent, led by construction companies and utilities.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 percent.

Wall Street ended sharply higher on Friday, led higher by rebounds in shares in the healthcare and technology sectors and after data suggesting the U.S. economy was picking up.

Trading on Monday was thinned by holidays. UK markets were closed while Japanese markets were closed from Monday to Wednesday. Major European markets were closed on Friday.

The dollar steadied on Monday taking heart from a jump on consumer sentiment on Friday and forecast-beating vehicle sales. The dollar index was up 0.2 percent.

"It's too early to call for a new trend of dollar strength at the moment," said Ulrich Leuchtmann, head of FX research at Commerzbank in Frankfurt.

"The big correction of extreme dollar long positions, especially against the euro, has not been visible yet. The pain of those still betting that this is a correction has to increase."

The euro, which has risen recently on higher government bond yields on signs of a pick-up in euro zone inflation, was down half a percent at $1.1142.

The yen was steady at 120.14 per dollar and sterling was down a shade at $1.5133 three days before Thursday's general election at which no single party is expected to win a majority.

Investors will also keep a close eye on U.S. jobs data on Friday for further clues to the Fed's policy outlook.

Yields on benchmark German Bunds, which saw their biggest weekly rise since mid-2013 last week, held around levels hit before the European Central Bank launched a 1 trillion euro bond -buying program in March to kick-start inflation and growth.

GERMAN YIELDS

German 10-year yields were last down 0.1 basis points at 0.365 percent.

"More and more investors are avoiding negative or very low yielding bonds and more and more think that reflation is actually taking place," said Chris Iggo, CIO for fixed income at AXA Investment Managers.

Renewed prospects of a financing deal to keep Greece afloat and in the euro zone have also been cited as a factor behind the surge in German yields.

Oil prices edged higher after an earlier fall as the Chinese PMI data raised the prospect of lower demand. Brent crude was last up 8 cents a barrel at $66.51, up more than 40 percent from a six-year low hit in January.

Gold rose 0.4 percent to $1,182.16 an ounce.

(Additional reporting by Saikat Chatterjee in Hong Kong, Jemima Kelly, Atul Prakash and Marius Zaharia in London; Editing by Jon Boyle)