German data & Cyprus concerns send shares, euro lower

European shares fell in morning trade on Thursday as data from Germany showed a slowing of business activity in March

European shares and the euro dipped on Thursday because of concerns over Cyprus but a pick-up in Chinese factory activity and the U.S. Federal Reserve's commitment to its loose policy stance limited the losses.

Data showing French Purchasing Managers Indexes (PMI) shrank in March at the fastest pace in four years added to investor's worries, sending the euro 0.3 % lower to around $1.29 but safe haven government bonds futures were also slightly easier.

European shares fell across the board with the FTSE Eurofirst 300 index down around 0.5 % and London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX around 0.7 % lower.

"The PMIs and the developments in Cyprus have all increased the downside risks in the euro area," said Tobias Blattner, European economist at Daiwa Capital Markets.

In Cyprus crisis talks among the political leaders in Nicosia resumed on Thursday morning to discuss a new bailout plan which could involve Russia. Banks were ordered to stay shut until next week.

Earlier Asian shares were lifted when the HSBC Purchasing Managers' Index for China showed a rise to 51.7 in March from 50.4 in February, pointing towards solid but not spectacular first-quarter growth in the world's second-largest economy.

The mood in the markets had already improved after the Fed left its aggressive policy stimulus unchanged despite improvements in the U.S. economy, pointing to still-high unemployment, fiscal headwinds out of Washington and the risks from Europe.

Fed Chairman Ben Bernanke said the central bank might slow the pace of its bond buying but only after the labour market showed sustained improvement over a number of months.

Japan's Nikkei stock average climbed 1.3 %, hitting a 4-1/2-year high as exporters gained on the Fed's commitment to its stimulative stance and expectations of further monetary easing by the Bank of Japan.

The new BOJ governor and his two deputies will hold the central bank's inaugural news conference later on Thursday. They are under pressure to deliver strong reflationary steps as part of Prime Minister Shinzo Abe's drive to end deflation and bolster growth.

Such views sent the 10-year Japanese government bond yield down to 0.58 %, the lowest since June 2003.

Oil prices drew support from the Chinese data to hold on to much of their previous day's gains but had eased slightly due the concerns about Cyprus. U.S. crude futures fell 0.3 % to $93.21 a barrel while Brent eased 0.1 % to $108.57.

"Demand from China is showing signs of picking up and the U.S. commitment to its easing policy should feed into more demand," said economist Alexandra Knight at National Australia Bank in Melbourne.