Japanese stocks outperformed the rest of Asia in thin trade, while the euro firmed on Monday as signs of U.S. economic recovery underpinned sentiment, although trading was subdued with many markets closed for extended Christmas holidays.

Tokyo's Nikkei stock average <.N225> rose 1.2 percent, trading above its 25-day moving average of 8,459.

But MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> slipped from a two-week high touched earlier in the day to trade nearly flat.

U.S., European and some Asian markets including Hong Kong and Singapore are closed on Monday.

Wall Street stocks rose on Friday, with the broad Standard & Poor's 500 Index <.SPX> breaking through its 200-day moving average after a four-day rally lifted stocks to bring the index up 0.6 percent for the year at last week's close.

The Dow Jones industrial average <.DJI> rose to its highest in five months on Friday.

The Nikkei is moving with New York. The gains in the U.S. and Europe gave some sense of relief to markets ... There are still a lot of overseas factors such as North Korea, Middle East unrest and of course Europe that are everyone's concern, Hajime Nakajima, a wholesale trader at Cosmo Securities in Osaka, Japan.

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Graphic of 2011 asset returns: http://r.reuters.com/suz52s

China, Europe, U.S. growth: http://link.reuters.com/ped75s

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Investors will be looking for clues over the strength of the U.S. economy from data due this week, including the S&P Case-Shiller house price index for October and consumer confidence for December.

U.S. consumer spending growth was tepid and a gauge of business investment fell for a second month in November, data showed on Friday, but recent labour and manufacturing figures implied a more-lasting and fundamental strengthening of the recovery.

The U.S. Congress on Friday approved a two-month extension of a payroll tax cut that will preserve income for most Americans, supporting their purchases of goods and services and support sentiment.

The euro was up 0.1 percent to $1.3054, well above its 11-month trough of $1.2945 hit earlier this month.

The latest Commodity Futures Trading Commission data showed investors reduced their short euro positions slightly, potentially giving support to the single currency.

Currency speculators boosted their bets in favour of the U.S. dollar.

Given a lack of factors to trade and low liquidity, activity is expected to be lackluster this week, but sluggish results of French and Italian government debt sales scheduled this week could pressure the euro amid an absence of progress in bolstering euro zone safety net, Barclays Capital said in a research note.

The 10-year Italian government debt yield stayed near 7 percent, above which many say is unsustainable for managing public finances and the economy, while 10-year Spanish government bond yield also stood at an elevated 5.40 percent.

Key European interbank lending rates fell on Friday as the European Central Bank's first-ever injection of 3-year liquidity earlier last week added nearly half a trillion euros in the financial system.

But dollar funding strains remained, reflecting wariness about European banks' health and risks of another global credit crunch, making banks reluctant to borrow to each other.

The London interbank offered rate for three-month dollars rose further on Friday to 0.57575 percent, the highest since early July 2009, from Thursday's 0.57375 percent.

(Additional reporting by Dominic Lau and Mari Saito in Tokyo; Editing by Ramya Venugopal)