Global shares up, euro vulnerable on divided EU summit

Wall St stocks log their largest gain in week, oil prices rise on encouraging US economic data

Asian shares rose on Thursday on encouraging US economic data, but prices could falter with markets tense ahead of a European summit deeply divided on how to tackle the protracted euro zone debt crisis and stop it spreading further.

MSCI's broadest index of Asia-Pacific shares outside Japan edged 0.2% higher while Japan's Nikkei average opened up 1%.

Wall Street stocks logged their largest gain in week on Wednesday and oil prices rose after data showed demand for long-lasting US manufactured goods rebounded more than expected in May, a gauge of planned business spending increased and pending home sales rose in May.

However, the upbeat sentiment may evaporate later on Thursday when a two-day EU summit starts in Brussels (1300 GMT), with Germany, France and Italy openly divided.

"This triumph of optimism is conditional on Europe delivering something and the Italian bond auction not being a disaster," said Sebastien Galy, strategist at Societe Generale. "Hence, we remain very much in a tense environment stepping away from the ledge."

German Chancellor Angela Merkel will pit herself against France and Italy at the summit, insisting they must put the bloc's fundamental problems ahead of pleas for emergency action.

Merkel left the door open to eventual joint debt issuance but offered no immediate moves to ease the tension, while EU Economic and Monetary Affairs Commissioner Olli Rehn said Europe would work at the summit on short-term steps to relieve market pressure on countries at risk.

EU leaders have met 20 times to try to resolve a crisis that has spread across Europe since it began in Greece in early 2010.

The euro remained vulnerable at $1.2470, near its lowest in more than two weeks of $1.2441 hit on Tuesday.

Asian credit markets were a tad firmer, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by 1 basis point.

"European policy makers have a good track record for underwhelming with their response to the banking and sovereign crisis to date. Thus we are cautious as we head into the summit," ANZ Bank said in a research.

"Spanish and Italian bond yields will remain vulnerable to whatever is delivered. Even if there is a good outcome, the uncertainty surrounding the ability to implement will be high. The Europeans need a strategy to cap bond yields or else another sovereign will be in need of a rescue package," it said.

Italy's six-month borrowing costs rose to 2.957% at auction on Wednesday, their highest since December. Rome tests more challenging investor appetite when it offers five-year and 10-year debt for up to 5.5 billion euros on Thursday.

Crude oil futures extended gains from Wednesday when tighter North Sea supplies. US crude were up 0.2% at $80.40 a barrel on Thursday and Brent futures also inched up 0.2% at $93.70 a barrel.