European shares rebound as U.S. data calms stimulus fears

By Marc Jones

LONDON (Reuters) - The dollar and global shares recovered from one-month lows on Tuesday and German Bund futures eased, after weak U.S. data calmed concerns about an early cut in central bank stimulus.

The dollar rose above 100 yen and its index clawed back some of the 1 percent fall seen on Monday after the Institute for Supply Management's (ISM) index of U.S. factory activity fell to 49.0, its lowest since June 2009.

European stocks were 0.6 percent higher, tracking an overnight rebound in U.S. and Asian shares and looking to snap a two-day losing streak that has left them at their lowest level since early May.

The disappointing ISM data bolstered the view that it is still too early for the Federal Reserve to start winding down its support programme. Nevertheless with such talk unlikely to go away, analysts saw recent large market swings continuing.

"Were are into this very volatile period which we were always going to have after such expansionary monetary policy," said National Australia Bank strategist Gavin Friend.

"Markets, in typical forward-looking fashion, are seeing the tapering as the beginning of the end of QE. You can argue that the Fed will still be buying significant quantities of bonds so markets shouldn't really react, but it is about the direction of travel."

As risk assets rebounded and investors kept positions tight ahead of the European Central Bank and Bank of England monthly meetings on Thursday and U.S. jobs data on Friday, German Bund futures dipped and peripheral euro zone debt edged up.

Commodity markets were also steadier. Copper climbed for a second session, while gold and oil were both little changed at $1,405 an ounce and $102 a barrel respectively.

JAPAN SWINGS, AUSTRALIA HOLDS

Many of the big moves were once again on Asian stock markets.

Japan's Nikkei climbed more than 2 percent, its biggest one-day rise in three weeks, as currency swings amplified moves ahead of Wednesday's announcement from Prime Minister Shinzo Abe on the third leg of his $1.4 trillion "Abenomics" stimulus strategy.

The latest changes are likely to centre on economic reforms but sources told Reuters the government could also include steps urging Japan's public pension funds to boost their investment in equities and overseas.

Australian shares rose 0.3 percent and the Aussie dollar dropped 1 percent to $0.9671 after the Reserve Bank of Australia left interest rates unchanged as expected, but said there was scope for further easing.

The firmer U.S dollar also pushed the kiwi dollar lower but had little impact on the euro which was steady at $1.3075.

Markets' focus was largely on the ECB's monthly meeting on Thursday with analysts expecting it to hold off from any fresh policy action to see whether economic recovery materialises in the second half of the year as it expects.

"We're still only in the second quarter, so I think in a few months' time we'll have a lot more visibility and emerging clarity as to whether this much-vaunted second half recovery is emerging and playing out," said Nomura economist Nick Matthews.

(Editing by Catherine Evans)