Asian shares and the euro eased on Monday, but losses were kept in check after a report showed Chinese factory activity stabilising in April, alleviating worries about a sharp deceleration in the world's second-largest economy.
European shares were also expecting a lower start, with financial spreadbetters predicting that major European markets <.FTSE> <.FCHI> <.GDAXI> would open down as much as 0.6 percent. U.S. stock futures were down 0.2 percent. <.EU> <.L> <.N>
The HSBC Flash Purchasing Managers Index showed China's factory output ticked higher, new business rose from multi-month lows and export orders perked up, though not sufficiently for a private sector survey of purchasing managers to flag a return to expansionary territory.
The index, the earliest indicator of China's industrial activity, improved to 49.1 in April from 48.3 in March, but stayed below 50, indicating contracting economic activity.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> narrowed its loss to a 0.4 percent fall after the data from a 0.5 percent drop, while losses in Hong Kong shares <.HSI> also shrank to a fall of 0.5 percent from a 0.8 percent drop. Australian shares <.AXJO> barely moved to stand down 0.2 percent.
China's PMI lifted the Australian dollar, which is sensitive to data from its biggest export market, to above $1.0340 from $1.0335. The Aussie was weighed earlier by an unexpected decline in producer prices last quarter, which set the stage for benign reading of consumer inflation due on Tuesday and a cut in interest rates next week.
Japan's Nikkei average <.N225> was down 0.1 percent. <.T>
The Chinese PMI was in line with market consensus for a soft landing. While growth is slowing, the slowdown has not accelerated sharply, giving some relief to those who had feared for a worse reading, said Tomomichi Akuta, senior energy researcher at Mitsubishi UFJ Research and Consulting in Tokyo.
This means the impact to commodities prices will be limited as demand will remain lacklustre, he added.
Copper futures retreated on Monday as investors stayed cautious, down about 1 percent at $8,113 a tonne. Brent futures held steady around $118.80, while U.S. crude futures edged down 0.1 percent to $103.80 a barrel.
The euro eased 0.2 percent at $1.3193, retreating from a two-week high of $1.3225 hit on Friday.
Market players will now look to the euro zone's manufacturing activity report due later in the session.
We also expect euro area PMI to come marginally above consensus on Monday, helping markets keep the positive tone inherited from Friday, Barclays Capital analysts said in a research note.
IMF FIREPOWER BOOSTED
Market sentiment stabilised before the Chinese data, after the International Monetary Fund secured $430 billion to erect a higher firewall in case the euro zone's debt crisis spreads.
But many see the IMF's expanded resources as merely buying time, keeping intact markets' scrutiny over progress in either debt restructuring or growth scenario.
The increase in the IMF is just a safety net. That alone is not enough to boost risk assets, said Koji Fukaya, chief currency strategist at Credit Suisse in Tokyo.
Market reaction was muted to the result of the first round of the French presidential election on Sunday, which showed Socialist presidential candidate Francois Hollande marginally ahead of incumbent President Nicolas Sarkozy.
Some analysts have warned a Sarkozy defeat in the May 6 second-round ballot would weaken the current close cooperation between France and Germany in dealing with the euro zone debt crisis, while others said Hollande, if he wins, was unlikely to threaten Europe's general course for fiscal austerity.
Sarkozy's leadership abilities were instrumental in the euro zone's fight against debt and investors are obviously worried that an absence of this key figure may be detrimental to further progress, said Oh On-su, an analyst at Hyundai Securities.
FUNDS SEEK GROWTH POTENTIAL
As the world's leading economies struggle to pick up momentum, investors sought opportunities for growth potential elsewhere.
Indonesia, Southeast Asia's largest economy, saw a 30.3 percent surge in foreign direct investment in the first quarter, boosted by an investment-grade credit rating which let it recently issue global bonds with yields lower than some of its emerging peers and troubled euro zone members.
EPFR Global-tracked Europe Equity Funds saw outflows for the fourth week running in mid-April on growing doubts over the ability of European policy makers to contain the euro zone debt crisis as Spanish sovereign debt yields soared, but Japan Equity Funds enjoyed inflows on the prospect of more stimuli from the Bank of Japan, Fund tracker EPFR Global said.
Asian credit markets were cautious, with the spread on the iTraxx Asia ex-Japan investment-grade index widening a tad by 1 basis point.
(Additional reporting by Joonhee Yu in Seoul and Hideyuki Sano in Tokyo; Editing by Alex Richardson and Michael Perry)