A TV crew films in front of the DAX board at the Frankfurt stock exchange on August 8, 2011.PAWEL KOPCZYNSKI/Reuters
The new year began on a bullish note, with global equities gaining following manufacturing reports in Europe and Asia which were not as bad as had been feared.
China's official purchasing managers' index showed expansion of activity in December, rising to slightly more than the crucial 50 mark that indicates growth.
European figures still pointed to contraction in December, at 46.9, but at a slower pace than November's 46.4. Activity improved most in Greece, though it remained at low levels, with improvements also seen in Italy, Spain and Germany.
European equities were up sharply, led by a 3 per cent rise in Germany's Dax index and a 2.4 per cent gain in Italy's FTSE MIB index - its best performance in nearly a month.
Brazil's Bovespa index added 0.7 per cent. Most other global equity and bond markets, including Japan and the US, were closed for the New Year's holiday.
Europe's regional FTSE Eurofirst 300 index rose 1.1 per cent to its highest level since the end of October. The gain matched the opening day's performance of the index last year.
However, fears that government austerity will weigh on growth persisted after a warning by Spain that its budget deficit for 2011 will exceed its target of 6 per cent, rising to 8 per cent. The euro slipped to less than the $1.30 level. Economists said the improved data did not represent a turning point.
"While the December PMI readings improved slightly in relation to October and November, they still seem to indicate," said economists at Barclays Capital, "that the euro area is currently going through a mild recession."
Barclays projects a contraction in real eurozone gross domestic product of 0.2 per cent in the first quarter, slightly less than the 0.3 per cent drop in activity in the fourth quarter.
In light trading in government bonds, Italian sovereigns were the best performers. Ten-year yields dropped 13 basis points to 6.81 per cent. Solid demand at an Italian auction of long-term debt last week pushed yields lower, but traders are eyeing $50-billion in refinancing expected this quarter.
A French auction on Thursday will be closely watched. French 10-year yields were up 7bp to 3.19 per cent yesterday, and German benchmark yields rose 7 basis points to 1.89 per cent. Factory data will also remain in focus. The US's Institute of Supply Management survey for December is to be reported on Tuesday, with a reading of 53.2 expected, up from 52.7 in November.
India on Monday reported its fastest factory activity in six months, although South Korean activity slowed to its worst pace since early 2009.
And China's official data may dash some hopes for aggressive Chinese monetary policy loosening.
"While growth remained subdued," said Flemming Nielsen, senior analyst at Danske Bank, "the Chinese economy does not appear to be deteriorating further."
"With no signs of a sharp deterioration in the economy, we also expect the policy response to be cautious in the coming months."
Currencies closely linked to resource prices, including the Canadian and Australian dollars, gained at the expense of the US dollar and yen.
Energy commodity markets were closed, while demand for precious metals was stronger. Gold rose 0.3 per cent to $1,567 an ounce, with silver adding 0.1 per cent to $27.86.
U.S. and Chinese monetary policy will be scrutinized this week, as the Federal Reserve publishes its most recent minutes.
"Central banks across the globe are going to continue to keep current levels of monetary expansion in place, while some may expand upon what they already have," said Eugenio J. Alemán, senior economist at Wells Fargo Securities.