World stocks were underpinned by surprisingly firm China manufacturing data on Monday, though further evidence that the world's second biggest economy is slowing, along with euro zone debt jitters, kept demand for riskier assets in check.

Wall Street was set to start the second quarter flat as the focus turned to equivalent U.S. figures later in the day, with investors keen to see if recent momentum in the world's largest economy could be maintained.

European equities started with modest gains after data on Sunday showed China's official Purchasing Managers' Index (PMI), which covers large factories, jumped to an 11-month high of 53.1 in March, beating forecasts.

The pan-European FTSEurofirst 300 index .FTEU3, which ended the last quarter with its best first-quarter performance since 2006, then fell.

Traders citing media reports the Bundesbank would not accept bonds of several countries, including Portugal, as collateral. The Bundesbank denied the reports, after which the index pared losses to around 0.25 percent from 0.4 percent.

This indicates nervousness about euro zone sovereign debt is not gone at all, a German trader said.

MSCI's all-country world equity index .MIWD00000PUS was little changed on the day, having inched up 0.1 percent earlier.

Equivalent euro zone figures, which had little impact on the market, confirmed earlier estimates that the manufacturing sector shrank for an eighth month, painting a grim outlook for the region as it struggles to generate the growth needed to tackle its debt.

MIXED OUTLOOK

U.S. stock index futures were flat to slightly softer, with the S&P 500 futures and the Dow Jones Industrial Average both down less than 0.1 percent as the ISM March manufacturing index loomed.

Economists in a Reuters survey expect a reading of 53.0 versus 52.4 in February, with some in the market saying this could be optimistic.

The forecasts look optimistic and therefore, particularly if it comes in below last month's reading, you could see... stocks selling off again and bonds having a bit of a bounce, said Marc Ostwald, strategist at Monument Securities in London.

Safe-haven German government bond prices pared earlier losses but still underperformed Italian and Spanish bonds whose yields fell as global growth fears eased.

Italian 10-year yields were down three basis points at 5.1 percent while equivalent German yields were 2.3 basis points higher at 1.82 percent.

U.S. 10-year yields were little changed at 2.2 percent.

The Japanese yen, which tends to gain when investors' appetite for risk sours, pared losses as some analysts cautioned not to read too much into the stronger-than-expected figure from China.

The high-yielding Australian dollar retreated from overnight highs, and was last 0.5 percent at $1.0389, having risen more than a full U.S. cent to a peak of $1.0470 after the Chinese data.

It seems like investors remain cautious with service sector data from China still to come this week and nothing to indicate an imminent policy response from the Chinese to the slowdown in their economy, said Valentin Marinov, head of European G10 fx strategy at Citi.

If anything the latest rebound in manufacturing pushes that policy response further into the future, he added.

The euro inched 0.1 percent lower against the dollar to $1.3344 while the dollar index .DXY slipped 0.1 percent to 78.90.