Asian stocks rose and the euro steadied on Wednesday, as investor risk appetite returned after upbeat U.S. and European economic data improved the global growth outlook despite deep-set worries over the euro zone debt crisis.

MSCI's broadest index of Asia Pacific shares outside Japan rose 0.7 percent, led by a 1.7 percent gain in the materials sector. The index fell 18 percent in 2011, sharply underperforming Wall Street's S&P 500, which ended the year virtually unchanged, and an 11 percent drop

in the FTSEurofirst 300 index of top European shares.

Japan's Nikkei stock average reached a three-week high and was up 1.3 percent, while Australian shares rallied more than 2 percent, helped by rising metals prices.

While we are structurally underweight risk, we suggest adopting a more neutral stance in the first two weeks of 2012, analysts at Barclays Capital said in a research note.

We do not expect higher risk premia because risky assets have sold off to a point where they offer interesting excess returns and because it has become expensive to short risk further unless data consistently surprise on the downside.

On Tuesday, European stocks closed at their highest in five months while U.S. stock indexes hit multi-month highs after data showed U.S. manufacturing grew at its fastest pace in six months in December, while U.S. construction rose to a near 1-1/2-year high in November.

Elsewhere, German unemployment fell sharply to the lowest in two decades, easing concerns that the euro zone debt crisis was putting a drag on global growth. The numbers followed earlier surveys showing Chinese manufacturing and service data topping forecasts and the euro zone's purchasing managers index contracting less than had been feared.

Asian credit markets firmed, with spreads on the iTraxx Asia ex-Japan investment grade index tightening a tad. Positive sentiment may spur an early rush of issuance as borrowers seek to take advantage of favourable conditions while they last to meet their 2012 funding needs.

EURO RALLY

The euro held steady around $1.3050 after posting its biggest one-day rally in nearly two months and reaching a one-week high of $1.3077 the previous day on upbeat data, staying well above its 2011 low of $1.2856 hit on December 29.

The single currency hovered near 100 yen, off a trough of 98.71 hit on Monday, its lowest since late 2000.

Oil prices slipped but were still largely underpinned by data suggesting demand from the world's two largest economies, the United States and China, may remain strong, as well as supply disruption concerns from Iran.

A key focus this week is U.S. employment data due on Friday, with analysts forecasting 150,000 jobs added in December, up from 120,000 in November.

Volatility will remain in 2012 given the uncertainty over the course of the euro zone debt crisis and its impact on the global economy, but it will not be as sharp as was in 2011, unless major unforeseen risks to the downside emerge.

The basic structure is unchanged from 2011, that is, developed countries will be undermined by the euro zone debt crisis and its fallouts while developing countries will manage to spur domestic demand, supporting industrialised countries' exports, said Makoto Noji, senior strategist for SMBC Nikko Securities.

Analysts say global economic data and European events will continue to drive markets in 2012, and that investors were expected to remain wary of aggressively taking risks throughout the year.

We expect global economic concerns to begin to dominate as Q1 2012 progresses, Standard Chartered said in a note to clients.

The analysts at Barclays Capital said they would recommend being structurally short the EUR, underweight currencies that are sensitive to European risks, and tactically going neutral (from underweight) risky currencies during times when risk sentiment temporarily improves.

Risks related to the euro zone debt crisis include progress in Greece's fiscal reforms, Italy's refinancing of about 150 billion euros ($195.8 billion) of government debt in February-April alone and the possibility of sovereign credit rating cuts in key euro zone economies including France.

($1 = 0.7661 euros)

(Editing by Alex Richardson)