European shares edge higher

By Marc Jones

LONDON (Reuters) - European shares edged higher and the euro was steady on Tuesday ahead of German economic sentiment data, while the yen rose after Japanese ministers played down talk the Bank of Japan might buy foreign bonds to loosen credit.

Following last week's GDP figures showing that the euro zone saw a weaker end to 2012 than expected, forecasters see a pick-up in Germany's ZEW survey of investors and analysts at 1000 GMT, which may point to rebound in the bloc's biggest economy.

European stock markets, which have lost around 1.5 percent since the end of January, bounced backed from Monday's weak session in early trading, with the FTSEurofirst 300 up 0.4 percent led by 0.7 and 0.5 percent gains on Paris's CAC-40 and Frankfurt's DAX.

Underscoring the drag Europe's economic sluggishness is creating, new figures showed car firms had their weakest January since the records of the Association of European Carmakers began in 1990, with sales dropping 8.5 percent.

Berkeley Futures associate director Richard Griffiths said the Euro STOXX 50 and German DAX equity index could fall by between 3 and 4 percent over the coming month as economic weakness acts to cap investor sentiment.

"Any inroads to the upside will be hard to come by," he said. "We're in for a period of consolidation, with the risk more to the downside."

In the bond market, benchmark German Bunds edged up as demand for low-risk debt was also supported by concerns over the possibility of an inconclusive outcome to the Italian parliamentary election on Sunday and Monday, though gains were capped ahead of the German sentiment data.

The euro was little changed against the dollar at $1.3345 by 0900 GMT after European Central Bank President Mario Draghi reiterated on Monday that the bank would continue to monitor whether the currency's recent strength was likely to push inflation below its comfort zone.

The yen rose after Japanese ministers played down talk of foreign-bond buying by the country's central bank, a day after Prime Minister Shinzo Abe said such a policy could be one option for monetary easing.

Finance Minister Taro Aso told a news conference that he was not considering foreign-bond purchases as a part of monetary easing, while Economy Minister Akira Amari said Abe's comments on Monday simply referred to policy options countries have in general.

Their comments sent the dollar down to 93.39 yen. The euro eased 0.6 percent to 124.70 yen, well below its peak since April 2010 of 127.71 yen touched on February 6.

(Reporting by Marc Jones; Editing by Alastair Macdonald)