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LONDON (Reuters) - The euro jumped and stocks rose as strong demand at auctions for Italian and Spanish government debt on Thursday eased fears over the region's debt crisis but markets are on watch for comments from the European Central Bank after it left interest rates unchanged.
U.S. stock index futures point to stocks rising on Wall Street after the well-received sovereign debt sales encouraged investors ahead of job market and retail sales data and expected to show the U.S. economy is steadily recovering.
Spain sold twice as much three-year debt as it needed and Italy paid less than it did a month ago on one-year securities at their first auctions of 2012 as cheap money lent to banks by the ECB in December fuelled demand for shorter term debt.
"Basically the only reason this has been taken down so well is abundant ECB liquidity and with another one coming up in February, just for now the market seems very complacent," said Michael Leister, strategist at DZ Bank in Frankfurt.
Spain's risk premium, the spread between yields on Spanish and German benchmark bonds, narrowed to its tightest level since January 3 after the auction results and the yield on its 10-year bonds eased to 5.14 percent, near the low for the year.
The yield on Italian 12-month bills fell to 2.735 percent, from the near 6 percent Italy paid to sell one-year paper at a mid-December auction and the lowest level since June 2011.
The shared currency moved up about 0.5 percent to $1.2770, after earlier bouncing off support at $1.2700. It had fallen as low as $1.26615 in New York on Wednesday.
As expected the ECB left its key interest rate unchanged at a record low 1.0 percent at Thursday's policy meeting as it pauses to assess the impact of back-to-back cuts and a slew of other measures unleashed late last year that are showing signs of helping fight the euro zone debt crisis.
But there remains a sense among some market participants that for the euro zone debt crisis to end, the central bank will need to do more, and markets will be watching comments by President Mario Draghi at the post rate setting news conference.
The markets want the ECB, for instance, to "put a cap on spreads of compliant countries over German Bunds so it would stabilize prices in the sovereign markets for good," Christian Schulz, senior economist at Berenberg Bank said.
Renewed worries over Greece's debt troubles are also weighing on markets. Greece has said it may need more money from European partners if not enough private creditors sign up for a voluntary swap of bonds to cut the country's debt burden.
"If the percentage of participation is not, for instance, 100 percent, then Greece may need further support from the side of our partners to cover the financial gap," the Greek deputy finance minister Filippos Sachinidis said on Thursday.
China inflation: link.reuters.com/waf95s
Industrial production comparison since 2000: link.reuters.com/zeb95s
UK industrial production vs. France & Germany: link.reuters.com/kez34s
Euro zone crisis in graphics: link.reuters.com/nyd85s
Equity investors were also in a defensive mood with the MSCI World Equity Index .MIWD00000PUS initially opening down after a subdued session in Asia, but it turned around after the Spanish debt auction to be up 0.4 percent at 306.88 points.
The FTSEurofirst index .FTEU3 index of top European shares also got a boost from the good debt auctions, gaining about 0.75 percent to 1029.75 and nearsits highs of August last year.
The STOXX Europe 600 Banking index .SX7P, the worst-performing sector last year with a decline of 32 percent, advanced 3.2 percent.
But some bad news on the European economy weighed on sentiment. Output at factories across the 17-country euro area fell 0.1 percent in November from October, and although this was slightly better than expected it reinforced the view that the euro zone economy entered a recession in the final quarter 2011.
Data out earlier showed China's annual inflation had eased to a 15-month low of 4.1 percent in December, raising hopes of a shift in policy priorities away from containing price increases and towards supporting growth.
Safe-haven gold inched up around $1,656 an ounce, close to its one-month high of $1,646.90 hit as the dollar eased against the euro. Copper prices also hit a one month high.
Oil prices were up about one percent at around $113.80 a barrel rose as worries about possible supply disruptions from Nigeria and Iran offset pressures from high inventory build and euro zone woes.
Additional reporting by Tracy Rucinski; Editing by Ruth Pitchford