Nerves ahead of a German debt auction helped put European stock markets in negative territory early on Wednesday and halted a surge for the euro after its biggest one-day gain in nearly two months.
The single currency was helped by U.S. and European manufacturing surveys which were broadly better than expected and showed American factories growing at their fastest pace in six months in December, lifting world markets.
The MSCI world equity index <.MIWD00000PUS> stood at its highest level in a month on Wednesday, helped by gains for Asian markets.
But European shares snapped a four-day rally at the open, edging lower on fears about the upcoming heavy load of euro zone issuance. The key FTSEurofirst 300 index <.FTEU3> fell about 0.3 percent in early trade.
Germany will sell 5 billion euros of 10-year Bunds, kicking off the new year's debt raising by euro zone sovereigns.
I think demand for Bunds generally remains pretty strong. We're hopeful the full amount will get away quite easily, said Commerzbank economist Peter Dixon.
But markets are nervous because a similar sale in November did not receive enough bids to cover the amount offered, the first sign the crisis could even trouble the currency area's most successful economy.
The German debt sale will be followed by a similar auction by France on Thursday with Italy and Spain set to begin their 2012 funding the following week. Markets are particularly concerned about Italy's ability to cover around 100 billion euros of redemption and coupon payments in the first four months of the year.
Portugal will also sell up to 1 billion euros of three-month T-bills on Wednesday.
The euro stood at $1.3060 in early European trade, slightly firmer than afternoon Asia levels. It gained as much as 0.9 percent on Tuesday to reach its highest in a week at $1.3077 in the wake of the better-than-expected U.S. manufacturing report.
The fact is that the euro has still many hurdles to clear. We think the euro will likely head to $1.25, Minori Uchida, a senior analyst at Bank of Tokyo-Mitsubishi UFJ. said, noting Italy's huge debt refinancing burden.
Also aiding the euro, were the minutes from the U.S. Federal Reserve's December meeting which the markets saw as dollar-negative.
The Fed said it would begin publishing forecasts on the path of interest rates later this month, a move that could suggest rates will be on hold for longer than previously expected.
Global manufacturing PMI: http://r.reuters.com/guq45s
Sector performance in 2011: http://link.reuters.com/wuv75s
Asset returns in 2011: http://r.reuters.com/suz52s
(Additional reporting by Marius Zaharia and Hideyuki Sano; editing by Patrick Graham)