U.S. markets closed

Europe shares, euro rise as German morale brightens

People walk past an electronic information board at the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth

By Nigel Stephenson

LONDON (Reuters) - European stocks rose and the euro strengthened against the dollar on Monday as a surprise improvement in German business morale added to optimism over the euro zone's recovery, although worries over credit tightening in China kept investors wary.

In Ukraine, where ousted President Viktor Yanukovich was on the run and being hunted for "mass murder", the country's dollar bonds rose, debt insurance costs fell and the hryvnia currency weakened but there was little impact on developed markets.

German Bund futures fell to the day's low after the Ifo business climate index in Europe's powerhouse economy rose to 111.3 from 110.6 last month. The euro firmed to $1.3769 but later gave back gains to trade flat to $1.3726.

The German data lifted European shares out of a funk caused by signs of credit restrictions in China's property sector. But sizeable falls in carmaker Volkswagen's (VOWG_p.DE) shares after a disappointing 2014 outlook and bank HSBC (HSBA.L) after lower than expected 2013 profits, limited gains.

Gold hit its highest in nearly four months on worries over Chinese growth and the pace of the U.S. recovery but later slipped back.

Wall Street looked set for early gains, with futures on the main indexes about 0.1 percent higher.

Earlier, shares in Asia fell and the Japanese yen rose as growth in Chinese home prices eased for the first time in 14 months - a sign Beijing's campaign to tighten credit conditions may be starting to bite.

Asian shares excluding Japan <.MIAPJ0000PUS> fell 0.4 percent and most Asian emerging markets currencies were lower. Tokyo's Nikkei index (.N225) fell 0.2 percent as the yen, which is often sought in times of market stress, strengthened.

"Dollar-yen moves on risk aversion, and when Tokyo stocks are down dollar-yen is down, even if the reason is a drop-off in activity in its (Japan's) major export market," said Marshall Gittler, head of global FX strategy at IronFX Global.

In Europe, the FTSEurofirst 300 index (.FTEU3) of top stocks edged up 0.01 percent. Volkswagen was down 5.8 percent.

"The weak guide for 2014 and the rich bid for Scania will likely dent sentiment and perpetuate the view that management is more focused on being big at the expense of shareholder returns," analysts at Barclays said in a note.

Spanish government bond yields fell, approaching recent eight-year lows, after Moody's raised Spain's credit rating in a further endorsement of Madrid's efforts to revive an economy once at the sharp end of the euro zone debt crisis.

"It's certainly reinforcing positive sentiment in Spain. Moody's has recognized not only the economic recovery but also the structural reforms ... and the fact that they're sticking to their guns on the fiscal deficit," said Nick Stamenkovic, bond strategist at RIA Capital Markets in Edinburgh.

Spain's 10-year government bond yields last traded 0.2 basis points lower at 3.56 percent, lifting off lows after final euro zone inflation for January came in higher than forecast, reducing the likelihood of the European Central Bank easing monetary policy further.

The yen was last up 0.1 percent at 102.48 to the dollar, which was up 0.1 percent against a basket of currencies (.DXY).


China shares sank to a two-week low as property and banking stocks slipped on mainland news reports that stoked fears banks had stopped extending loans to property-related companies.

"I would get out of interest rate-sensitive sectors. It's very hard to navigate right now with policy risk on the rise," said Hong Hao, Hong Kong-based chief equity strategist at Bank of Communication International.

Group of 20 finance ministers and central bankers committed to spurring faster global growth at a two-day meeting in Sydney over the weekend.

The final communique said the G20 would increase investment and employment, generating more than $2 trillion in additional output over five years while creating tens of million of new jobs.

Brent crude fell 0.1 percent to $109.78 a barrel. Gold rose to $1,334.50 an ounce, its highest since October 31, before retreating to $1,332.60.

(Additional reporting by Marius Zaharia and Laurence Fletcher, Blaise Robinson in Paris and Lisa Twaronite in Tokyo; Editing by Hugh Lawson)