European shares flat, supported by growth outlook

By Richard Hubbard

London (Reuters) - European shares edged up but the euro fell and German bonds trimmed their losses on Monday as a resurgence of worries about Europe undermined positive sentiment stemming from stronger U.S. and Chinese economic data.

However, the rising confidence in the global economic recovery underpinned oil and copper, although prices moved in narrow ranges at the start of a week which sees policy meeting by several major central banks and a summit of European leaders.

"We are now seeing a consistent story of moderate growth in the U.S. and China," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

The economic outlook brightened considerably last week after data showed U.S. factory activity quickened in January and hiring increased, and after a survey of euro zone business activity suggested the worst of the region's downturn may be over.

On Sunday China's official purchasing managers' index (PMI) for the increasingly important services sector posted a fourth-straight monthly rise in January, although its slim gain added to evidence that the global recovery is a modest one.

But Spain dampened the mood in Europe by reporting that its unemployment problems are worsening as a corruption scandal threatens to engulf Prime Minister Mariano Rajoy, with the opposition calling for his resignation.

"If Rajoy were really forced to resign, if we were to have new elections in Spain, that would not help the improvement we've seen in financial markets," Tobias Blattner, European economist at Daiwa Capital Markets said.

Ten-year Spanish government bond yields rose 11 basis points to 5.32 percent in early Monday trade.

The equivalent Italian yields also rose on concerns that a scandal involving a major domestic bank could boost support for the centre-right party led by former prime minister Silvio Berlusconi as election day approaches.

The German Bund future which had opened 53 ticks lower at 141.48, trimmed its losses to be only down 13 ticks.

The pan-European FTSEurofirst 300 index held near a 23-month high after a solid rally since the start of the year to be up 0.15 percent. London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were flat to slightly lower.

Meanwhile the euro fell 0.3 percent to a day's low of $1.3602 after the Spanish jobs data was released, with bids cited at $1.3580 and $1.3600.

(Reporting by Richard Hubbard. Editing by David Stamp)