European shares stabilize, economic data eyed

European shares and the euro gradually recovered on Monday from early losses triggered by the mass downgrade of euro zone sovereign ratings last week, but they still looked vulnerable amid rising fears of a disorderly Greek debt default.

Markets had already reacted to the downgrades on Friday, and European assets steadied by Monday afternoon, but activity was limited with U.S. markets closed and the problems in the region's debt markets continued to weigh on sentiment.

The European Central Bank more than tripled its bond purchases in the week to January 13 to calm market fears and halt the rise in yields, spending 3.77 billion euros compared with 1.1 billion the previous week, data showed on Monday.

However, the glimmer of hope which had emerged after solid bond auctions by Italy and Spain last week, and a view that the S&P move on ratings had been well telegraphed, helped steady market nerves though confidence could quickly ebb.

“If we were to see the start of a downward spiral, and any further loss of confidence in the euro zone started to materialize, that would have a broader negative impact for the euro and riskier currencies in general,” said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

The euro was up 0.3 percent against the dollar at $1.2673 in late European trade in thin trading but was still seen vulnerable to a test of Friday's 17-month low of $1.2624.

The FTSEurofirst 300 .FTEU3 index of top European shares ended up about 0.8 percent at 1,025.64 points in low volume while the main euro zone bank stock index .SX7E reversed some heavy early losses on fears the sector could be the next target for rating cuts to end up 0.3 percent.

World shares overall .MIWD00000PUS recovered from losses seen in Asian trade to be just 0.1 percent higher. Source: Reuters