By Marc Jones
LONDON (Reuters) - A delay in potential U.S. military action in Syria and improving economic data from China and Europe lifted world share markets on Monday and sent safe-haven government bonds, gold and the Japanese yen lower.
Oil prices rebounded on the brighter economic outlook, after falling initially following U.S. President Barack Obama's decision to rule out military action against Syria until lawmakers have had a chance to vote on the plan.
"Oil would have been pushed lower had it not been for the China data," said Ben Le Brun, market analyst at OptionsXpress. "The market is keeping an eye on the Middle East and developments in Syria, but we have seen some tensions easing."
Conflict in Syria is a worry for markets because it threatens to ignite wider tensions in a region that produces a third of the world's oil.
By mid afternoon in Europe, Brent crude was slightly firmer at $114 per barrel after shedding more than a $1 in Asian trading.
Gold was down 0.2 percent at $1,389.40 an ounce while 10-year German government bonds, another traditional refuge for nervous investors, fell sharply, pushing the yield up 6 basis points and back towards a 1-1/2-year high hit last month.
"The risk premium linked to geopolitical events has decreased, so risk appetite probably is resuming somewhat," said Patrick Jacq, European rate strategist at BNP Paribas.
Global manufacturing PMIs: http://link.reuters.com/sun42t
Regional manufacturing PMI: http://link.reuters.com/dur58s
China PMI: http://link.reuters.com/qaf92t
GLOBAL ECONOMY SHINES
Wall Street was closed for the Labor Day holiday and that would probably keep global market activity in check.
Many investors were also wary of taking action ahead of major central bank meetings later in the week and the important U.S. payrolls report on Friday. The jobs data could influence markets' view on when the Federal Reserve is likely to start scaling back stimulus, which has helped drive equity markets higher.
Prospects for the global economy have brightened considerably according to a fresh round of purchasing managers' surveys for August, which provide a guide to future levels of economic activity.
PMIs for China indicated activity in the country's vast manufacturing sector was at its highest in more than a year, easing investor concerns that the world's No. 2 economy was on course for a sharp slowdown this year.
The recent signs of improvement also continued in the euro zone where factory activity rose at its fastest pace in over two years, and manufacturing in struggling Spain grew for the first time since April 2011.
Europe's broad FTSEurofirst 300 share index ended up 1.8 percent, on course for its biggest one-day jump since the start of July as the data, which was particularly strong in the UK, also lifted sterling.
In the United States, stock futures rose on the delay in action on Syria. S&P 500 futures rose 16.5 points. Dow Jones industrial average futures added 117 points and Nasdaq 100 futures rose 35.5 points.
Elsewhere, India notably bucked the improving trend. Factory activity in Asia's third-largest economy shrank in August for the first time in over four years, putting further pressure on the battered rupee and adding to the country's economic malaise.
The data halted a two-day rebound in the rupee, which edged down 0.4 percent to 66 to the U.S. dollar and was not far from a record low of 68.80 hit last week.
"Just about the whole world seems to be surprising on the upside on PMIs except India," said Mike Ingram, market commentator at BGC Partners.
MSCI's world equity index was up 0.6 percent after four consecutive weekly losses during which investors positioned for the Fed to begin trimming its monetary stimulus, perhaps at its meeting this month.
The reduced risk of an imminent U.S. attack in Syria dented demand for the Japanese yen, which is often sought for its safety in a time of crisis. That helped spur the dollar to 99.27 yen, up 1.1 percent and its highest in a month.
The dollar index, which tracks the greenback against six major currencies, was up only 0.2 percent at 82.255 as sterling's rise to $1.5579, driven by the strongest UK manufacturing PMI in 2-1/2 years, balanced out the weaker yen.
"The UK's factories are booming again ... as rising demand from domestic customers is being accompanied by a return to growth of (its) largest trading partner, the euro zone," said Rob Dobson, senior economist of the index's compiler Markit.
China's brighter economic news helped emerging market assets and lifted the Australian dollar, which is seen as a proxy for Chinese growth because of the two countries' close trade ties. It rose 0.9 percent to $0.8990.
Copper prices, also buoyed by the factory data from top consumer China, rebounded 2.0 percent to $7,235 a tonne after a four-day losing streak.
(Additional reporting by Marc Jones and Ana Nicolaci da Costa in London and Christopher Johnson and Luciana Lopez in New York; Editing by Susan Fenton and James Dalgleish)