LONDON (AP) -- Growing hopes that the European Central Bank will cut interest rates next month shored up markets Tuesday despite more evidence that the Chinese economy is slowing down.
After a disappointing trading session in Asia, investors, particularly in Europe, have turned increasingly confident that the ECB will decide to cut its main interest rate to a record low of 0.50 percent at its meeting next Thursday.
The latest bout of speculation over the ECB came after a survey into manufacturing conditions among the 17 European Union countries that use the euro disappointed. The PMI survey from Markit fell another 0.3 points in April to 46.5 — anything below 50 indicates a contraction.
Despite confirmation of the recessionary conditions in the eurozone as a whole, investors piled back into stocks despite the subdued start to the day.
"This is now going to prompt talk again of an ECB rate cut, given that Bundesbank head, Jens Weidmann, conceded recently that a rate cut would be considered if we see further worsening in the economic data," said Craig Erlam, market analyst at Alpari. The Bundesbank is Germany's central bank.
In Europe, Germany's DAX rallied 2.1 percent to 7,638 while the CAC-40 in France was up 3 percent at 3,761. The FTSE 100 index of leading British shares was 1.8 percent higher at 6,392.
The market optimism helped lower interest rates on government bonds for financially weak countries like Italy and Spain.
Wall Street opened strongly too, with the Dow Jones industrial average up 0.7 percent at 14,677, while the broader S&P 500 index rose the same rate to 1,573.
A raft of earnings helped shore up the U.S. open. DuPont, the chemical maker, reported first-quarter profits that more than doubled as its agricultural unit did brisk business. Travelers insurance and Coach soared after strong reports.
The main point of interest on the earnings front will be when Apple reports after the markets close. The company has seen its share price take a battering over the past few months amid mounting concerns over its product line and tough competition.
"There will also be a lot of interest in the outlook for Apple, with the current share price reflecting the pessimism surrounding the company, compared to last year," said Alpari's Erlam.
Earlier, Chinese shares underperformed after a downbeat manufacturing survey renewed concerns over the world's second-largest economy.
A preliminary survey by HSBC Corp. found that China's manufacturing growth slowed in April, in a further sign that the economy is slowing.
HSBC's monthly purchasing managers' index — a gauge of business activity — fell to a worse-than-expected 50.5 from March's 51.6 on a 100-point scale. That means it's growing but only just — anything below 50 would have signaled a contraction in activity.
"Just as in 2012, Chinese growth is failing to live up to the market's high expectations," said Rebecca O'Keeffe, head of investment at Interactive Investor.
The survey hit Chinese shares particularly hard, with the country's Shanghai Composite Index tumbling 2.6 percent to 2,184.54 and the Shenzhen Composite Index falling 2.7 percent to 923.42. Hong Kong's Hang Seng shed 1.1 percent to 21,806.61.
Elsewhere in Asia, Japan's benchmark Nikkei index slipped as the yen gained ground against the dollar. The Nikkei 225 in Tokyo fell 0.3 percent to close at 13,529.65.
By late afternoon London time, the dollar had recovered, and was trading flat at 99.32 yen. However it was rising against the euro, which was trading 0.3 percent lower at $1.3019.
Oil prices were also depressed following the disappointing economic data, with the benchmark New York rate down $1.08 at $88.11 a barrel.