China data hits Europe shares, Crimea keeps nerves taut

LONDON - European shares edged lower on Monday after further signs of a slowdown in China, although robust data from France and Germany limited their decline.

The euro briefly strengthened against the dollar and German Bund futures extended losses after data compiler Markit said its March flash composite purchasing managers' index for France jumped to 51.6 from 47.9 last month.

However, the single currency largely gave up its gains after figures showed private sector growth slowed in Germany. Data from the euro zone as a whole, while suggesting the recovery was becoming more broad-based, dipped compared with February.

Having lagged the recent recovery in much of the euro zone, the French index surged through the 50-point threshold dividing contraction from expansion to hit its highest since August 2011.

However, the data was not enough to lift European shares. The FTSEurofirst 300 index .FTEU3 fell 0.2 per cent as investors focused on a fall in Chinese business activity.

The flash Markit/HSBC China Purchasing Manager index fell to an eight-month low of 48.1 in March from February's 48.5. The index has been below 50 since January.

"As the data shows this morning, China's slowdown is sharper than what most people had expected, which fuels worries about the impact on global growth," Philippe de Vandiere, analyst at Altedia Investment Consulting in Paris, said.

"But Chinese authorities have plenty of tools to avoid a hard landing, and we know that the country's transition to an economic model more focused on consumer spending will lower its growth rate a bit, so no big concern here."

A string of weak numbers has reinforced concerns over a slowdown in the world's second largest economy, though the impact on Asian shares was limited as the data raised expectations the Chinese government could stimulate the economy.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.8 per cent and Japan's Nikkei share average .N225 gained 1.8 per cent, after solid performances on Wall Street last week, with the Dow .DJI and S&P 500 .SPX posting weekly gains of 1.5 per cent and 1.4 per cent.

China's CSI300 index .CSI300 of leading Shanghai and Shenzhen A-share listings rose 0.8 per cent in anticipation of stimulus measures.

However, analysts said the tone in markets would partly be driven this week by geopolitics.

Group of Seven leaders were due to hold talks in The Hague on Monday on their response to Russia annexing Ukraine's Crimea.

NATO's top military commander said on Sunday that Russia had built up a "very sizeable" force on its border with Ukraine and Moscow may have another ex-Soviet republic, Moldova, in its sights after annexing Crimea.

Russian shares .MCX rose 1.3 per cent, rebounding from a fall on Friday, and the ruble gained against the dollar.

"There have been no further sanctions imposed over the weekend, investors can more soberly assess the threat of sanctions already imposed," Vasiliy Tanurkov, an analyst at Veles Capital, said in a morning note.

MSCI's main index of emerging stocks .MSCIEF rose 1 per cent.


The dollar index .DXY, which measures the greenback against a basket of currencies, ticked up to 80.174. On Thursday, it hit a three-week high of 80.354.

The euro last stood at $1.3788, all but flat on the day, having hit a high of $1.3875 after the French data. The dollar rose 0.3 per cent against the yen at 102.50 yen.

Three-month copper on the London Metal Exchange rose 0.3 per cent to $6,496.00 a tonne, erasing losses in the immediate wake of the China data.

Spot gold dipped to $1,323.60 an ounce, following a sharp fall triggered by comments last week from Federal Reserve chief Janet Yellen that suggested US interest rates could rise sooner than many in markets had expected.

Brent crude traded at $106.71 a barrel with supply disruption worries keeping it off a six-week trough of $105.41 hit on Thursday.