LONDON (Reuters) - World shares and oil rose on Monday as investors edged back into riskier assets at the start of a new quarter, pinning their hopes on a solid U.S. economic recovery and brushing off signs of a slowdown in China.
Data showing Europe’s downturn stabilizing and a clear improvement in Japan added to the hopes the world economy was entering the second half on a firmer footing, though much depends on a reading of U.S. factory activity due at 1400 GMT.
Wall Street is expecting the Institute for Supply Management (ISM) index of national factory activity to show a slight rise from May, setting the stage for a firmer open to trading .N
This would add to gains of 0.3 percent in MSCI’s world equity index .MIWD00000PUS as it bounced back from its first quarterly loss since the same period of 2012.
European shares reflected the positive tone, gaining 0.7 percent .FTEU3 but volumes were light as traders await the U.S. economic report. Brent crude edged higher too, rising nearly $1 a barrel to $103.10.
Markets are highly sensitive to U.S. data at present because it will shape the timetable for the Federal Reserve to taper its $85-billion-a-month in asset purchases, which have supported stocks, bonds and commodities worldwide.
“People are either sitting on their hands or taking a much shorter-term view,” Matt Basi, sales trader at CMC Markets, said.
Many major equity indexes had hit record highs in May but then fell back after U.S. Federal Reserve chief Ben Bernanke confirmed the Fed would soon scale back the stimulus program that had been behind the rally.
Emerging market stocks .MSCIEF in particular have suffered heavily from the prospects of end to the Fed’s ultra-loose policy, though these steadied on Monday around 12 percent below their May 22 peak when the Fed first signaled the change.
Evidence of a slowdown in China’s factories had little effect on sentiment despite pointing to weakness in the world’s No.2 economy, with promises from Chinese policymakers to keep the economy on an even keel in 2013 buoying shares.
Japanese manufacturers’ sentiment also turned positive in the three months to June for the first time in nearly two years, a sign that aggressive monetary stimulus and fiscal spending are having an effect.
But the key to whether the positive mood takes hold lies in Friday’s U.S. non-farm payrolls report where a strong reading would fuel widespread talk the Fed will start to cut back its stimulus efforts in September.
“Moderate payroll growth is probably enough now to keep unemployment ticking down and with that pace you’ll get (Fed) tapering starting in September,” said Nick Beecroft, senior market analyst at Saxo Capital Markets.
An anticipated end to Fed bond buying supported the dollar near a four-week peak against a basket of currencies .DXY, though it rose to its highest in nearly four weeks against the yen at 99.73 yen.
The euro, however, was up 0.3 percent at $1.3040 after a euro zone survey showed manufacturing across the recession hit region had stabilized in June.
“Both output and new orders barely fell during June, and on this trajectory a return to growth for the sector is on the cards for the third quarter,” said Chris Williamson, chief economist at the survey’s compiler Markit.
Traders also looked ahead to Thursday’s policy meeting of the European Central Bank - which in contrast to the Fed is likely to emphasize a commitment to keeping policy loose.
“We expect the ECB to continue emphasizing that extraordinary accommodative policies will continue, and that it has other options if looser monetary policy is needed,” said analysts at RBC Capital Markets.
The PMI manufacturing survey eased pressure on the ECB to do more, while hopeful individual country surveys helped Spanish 10-year bond yields dip 7 basis points and Italy’s equivalent drop 5 bps.
Core German bond prices fell further after posting a second month of losses in June, with cash 10-year yields up 2 bps at 1.75 percent in edgy trading before the U.S. manufacturing data due at 1400 GMT.
In commodity markets, renewed demand for copper lifted the metal by 2 percent though it remained near three-year lows as the Chinese data underlined sluggish prospects for metals.
Editing by John Stonestreet and Toby Chopra