Stocks rose and the euro steadied on Wednesday as investors remained on guard ahead of the release of manufacturing surveys from the Europe's biggest economies after China's powerful factories showed a slight expansion.
The Chinese manufacturing sector grew modestly in January, with an official PMI reading inching up to 50.5 from 50.3 in December, beating the 49.5 forecast and lifting Asian stocks and commodity-linked currencies.
Euro zone Purchasing Manager's Indexes are expected to show the region still on track for a modest recession as its debt problems hit consumer and business confidence, although Germany should stand out, staying on track for small expansion.
Across Europe stock markets started firmer with the pan-European FTSEurofirst 300 <.FTEU3> index of top shares up 0.3 percent at 1,040.81 points.
The probability of the euro zone debt problems turning into a global financial crisis has receded considerably and the risk of global growth grinding to a halt is low, but that doesn't change the main scenario for an economic slowdown generally, Takao Hattori, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo said.
The euro slipped slightly after no concrete progress was made in the debt restructuring negotiations between the Greek government and its private bond holders. The single currency was off 0.2 percent at $1.3050.
The euro's inability to push through technical resistance around $1.3244, disappointment from the EU summit and concerns about Greece and Portugal are causing euro/dollar to pull back, said Niels Christensen, currency strategist at Nordea in Copenhagen.
The dollar <.DXY> was slightly firmer against a basket of major currencies but hovered at three-month lows against the yen under pressure from interest rate differences as traders focus on the prospect of more quantitative easing by the Federal Reserve.
The MSCI world equity index, which has enjoyed a strong start to the year, seeing a rise of nearly six percent in January, was virtually unchanged at 316.4.
Europe's debt markets will be watching the outcome of Germany's auction plans to sell up to 5 billion euros worth of 10-year government bonds later in the day in a test of whether safe-haven demand is strong enough for Bund yields to revisit their record lows in the near-term.
German bond prices were little changed ahead of the auction.
Later in the U.S. the ISM manufacturing index is expected to confirm further improvement in factory output at the start of this year.
(Additional reporting by Jesica Mortimer in London and Chikako Mogi in Tokyo; editing by Anna Willard)