Stronger China factory data lifts European shares

European shares edged higher on Tuesday as improving Chinese factory data eased concerns about the health of the global economy, but the euro's gains were limited after Moody's ratings agency cut its outlook for Germany.

Moody's cited the costs associated with a potential Greek exit from the euro zone and the possible need to provide support to Spain and Italy as the reason for the change in outlook for top-rated Germany, Luxembourg and the Netherlands.

"More bad news has been emerging from Europe, but it's not surprising bad news, just new developments on the same problems," said Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo.

The euro was steady at $1.2107, just above a 25-month low of $1.2067 hit on Monday when concerns about Spain sparked a broad sell-off in financial markets.

Equity investors were focused on the upcoming release of euro zone purchasing manager's indexes (PMIs) for July after HSBC's flash estimate for China's giant manufacturing sector rose to a five-month high in July, in part due to gains in new export orders.

The PMI for France showed private sector activity shrinking at a slightly slower pace in July but still suggested the euro zone's second-biggest economy may be in recession.

The FTSEurofirst 300 index of top European shares was 0.4 percent higher at 1,027.93 points in early trade, after falling 2.4 percent to a three-week low in the previous session on concerns that Spain may soon need an international bailout.

Spain faces a test later on Tuesday when it offers 3 billion euros in 3- and 6-month bills after its longer-term bond yields set fresh euro-era highs on Monday.