European stocks crept higher on Tuesday, catching the tailwind of a pre-holiday U.S. rally, while the euro was hamstrung by the prospect of a large Italian debt auction later in the week.
Oil prices were buoyed by positive U.S. jobs and housing data late last week as well as the prospect of sanctions against Syria choking off production there.
At 1130 GMT, the FTSEurofirst 300 <.FTEU3> index of top European shares was up 0.2 percent at 992 points. Stock markets in Britain, Hong Kong and Australia remained closed.
Asian shares eased as investors squared positions before U.S. markets reopen after a long weekend, leaving the MSCI world equity index <.MIWD00000PUS> fractionally higher on the day.
U.S. stock futures pointed to a steady start on Wall Street.
With U.S. and European players in holiday mood, there is no incentive except for year-end position adjustments, said Hirokazu Yuihama, senior strategist at Daiwa Capital Markets.
But concerns about euro zone debt will resurface ... with the focus on refinancing needs facing Italy and Spain, and whether sovereign yields of these countries would shoot above levels considered unsustainable, he said.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> slipped 0.3 percent and has shed 17 percent so far this year. It has underperformed the pan-European index, which is down 12 percent. Japan's Nikkei stock average <.N225> closed down 0.5 percent and has also lost 17 percent this year.
The euro traded at $1.3075, little changed on the day. A fall below $1.2945, a level touched earlier in the month, would take the single currency to its weakest since January.
German government bond futures were up 33 ticks due to investors seeking safe harbour ahead of Thursday's Italian debt auction to raise up to 8.5 billion euros via three- and 10-year bonds.
I think there could be some downside risks for the euro. (Thursday's auction) will be more of a test of the market, given that the bonds auctioned are longer maturities, said Sverre Holbek, currency strategist at Danske in Copenhagen.
A further rise in Italian yields should almost certainly be euro negative, and thin liquidity may exacerbate the move.
Italian 10-year borrowing costs rose 8 basis points on the day to 7.10 percent, a level viewed as unsustainable in the long-run for a country facing a national debt of around 120 percent of GDP. It faces around 150 billion euros of debt refinancing in February-April alone.
HOPES FOR U.S.
After upbeat U.S. reports last week, investors will be looking for more positive signs when the S&P Case-Shiller house price index for October and consumer confidence data for December are released later on Tuesday.
U.S. holiday season retail sales were expected to rise 3.8 percent to a record $469.1 billion, the National Retail Federation said, slower than last year's growth but stronger than its pre-season forecast.
Brisk sales would reinforce signs the U.S. economy is recovering, following data showing the number of Americans filing new claims for jobless benefits hit a 3-1/2-year low in the week before Christmas while new U.S. single-family home sales rose to a seven-month high.
The Standard & Poor's 500 Index <.SPX> broke through its 200-day moving average on Friday after a four-day rally lifted the index into positive territory for the year.
U.S. crude oil futures and gold have been among the top performing assets in 2011, with year-to-date rises of about 9 percent and 12 percent respectively.
Brent crude rose slightly to trade above $108, supported by supply disruptions in Syria and Iranian naval exercises in a key shipping lane, while improved U.S. home sales data and year-end short-covering also supported prices.
Arab League peace monitors arrived in the Syrian city of Homs on Tuesday for a first look after tanks were seen leaving the hotbed of anti-government unrest where hundreds have been killed during nine months of military crackdowns on protesters.
Syrian Oil Minister Sufian Alao said on Saturday that his country's oil production had fallen by about 30 to 35 percent as a result of sanctions imposed on Syria over its nine-month crackdown on anti-government protests.
Syria could be a support factor for the time being, but we will not see a big climb or rocket high prices because of that, Ken Hasegawa, a derivatives manager with brokerage Newedge in Tokyo, said.
Gold hovered around $1,600 an ounce, as investors stayed on the sidelines in the final week of the year.
(Editing by Patrick Graham)