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Europe lifted by PMI data as China wobble hits Asia

LONDON/HONG KONG--Robust German PMIs helped Europe shrug off some mixed Asian data on Monday, though caution remained much in evidence just days away from what looks set to be a very close call on the fate of U.S. monetary stimulus.

European stocks started the week in better form than they ended on Friday, as an upturn among Germany's export-oriented manufacturers offset an unexpected slowdown in France to help the eurozone end the year on a high.

“It's really encouraging to see the increase in the overall rate of growth,” said Chris Williamson, chief economist at Markit, which compiles the widely watched purchasing managers index (PMI) surveys. “It's a reassuring signal that the recovery is still on track. We are not losing momentum.”

Britain's FTSE 100, Germany's DAX and France's CAC 40 all overcame early wobbles to settle 0.3, 0.4 and 0.5 percent higher respectively as they bounced away from two-month lows.

Jan von Gerich, chief developed markets strategist at Nordea, said the PMI data painted an interesting picture but stressed they were likely to be little more than a diversion for investors with so much going on this week.

The Federal Reserve meets on Tuesday and Wednesday to discuss tapering its US$85 billion of monthly bond buying and opinion remains divided on whether it will move this week or wait until January — or even March.

“Tomorrow we get inflation data from the U.S. which will probably shape the final expectations going into the meeting because that has been one of the things that has been holding the Fed back,” said von Gerich.

“Some of the recent data has suggested the weakest inflation is behind us, but it has not all been that way ... so (considering tapering expectations) a downside surprise will have a bigger impact than a upside surprise.”

Asian markets were mostly lower Monday as dealers bet that the U.S. Federal Reserve will announce a cut in its stimulus program at its policy meeting this week.

Despite a Bank of Japan survey of business confidence, which jumped to levels not seen since 2007, Tokyo closed down 1.62 percent, or 250.20 points, to 15,152.91.

Sydney lost 0.17 percent, or 8.8 points, to end at 5,089.6 and Seoul was flat, edging down 1.76 points to 1,961.15.

Shanghai finished 1.60 percent, or 35.21 points, lower at 2,160.86 and Hong Kong gave up 0.56 percent, or 131.30 points, to close at 23,114.66 after a preliminary HSBC survey showed growth in manufacturing activity in China slowed in December.

Trading has largely been driven over the past week by what investors think the Fed will do at its two-day meeting that ends on Wednesday, with opinion split on whether it will begin winding down its bond-buying program this month or early next year.

A series of upbeat figures from Washington — including falling unemployment and strong third-quarter growth — as well as pro-cut comments from Fed officials have made a “taper” seem more likely.

Gold fetched US$1,229.05 at 1058 GMT compared with US$1,223.09 late Friday.

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