LONDON The euro set a new six-month month high on Tuesday and the region's shares made gains as the latest economic data made for some encouraging reading, especially in Germany.
Investors continued to grapple with U.S. uncertainty and a deadly bomb blast in Britain subdued the pound, but euro zone PMI surveys, showing the bloc's firms on their strongest run since 2011, lifted the mood.
The euro climbed as high as $1.12680 to beat the previous day's high by a whisker, while London FTSE, Frankfurt's DAX and the CAC in Paris pushed up 0.3 percent, 0.5 and 0.7 percent respectively in share markets.
Alongside strong headline numbers, one of the most eye-catching details in the data was the biggest manufacturing sector job growth reading in the survey's 20-year-history and overall employment gains were the second best in a decade.
"It's a very good result and it's broad based. We've got a good pace of growth here. The fact we have maintained this high level in May is great news for second quarter GDP," said Chris Williamson, chief business economist at IHS Markit."
Signs that euro zone authorities and the International Monetary Fund remain some way apart on Greece's debt problems combined with the strong data to nag at bond markets.
Greece's short-dated government bond yields rose sharply as the IMF's chief negotiator stuck to its stance that there needs to be more realism on what Athens can deliver.
The prospect of the ECB scaling down its multi trillion euro stimulus programme meanwhile nudged up yields on German Bunds and other higher-rated government debt. [GVD/EUR]
"The risk-off environment is already erased and we are back to the levels we saw yesterday on the back of the very bright economic outlook," said DZ Bank analyst Rene Abrecht.
Britain's sterling steadied at just under $1.30 and at 86.6 pence per euro after slipping overnight after a suicide attack killed at least 22 people and wounded 59 at a pop concert in the English city of Manchester.
The attack as Britain gears up for a snap election on June 8. British Prime Minister Theresa May is expected to win easily, although polls show the contest is tightening and tough talk from the EU ahead of Brexit negotiations has also added to sterling's woes.
Asian trading had seen a modest pull back in risk appetite with MSCI's broadest index of Asia-Pacific shares not including Japan dropping back from near two-year highs.
Tokyo's Nikkei closed down 0.3 percent as Japanese manufacturing activity expanded at the slowest pace in six months in May, while trading in China was choppy on concerns over a regulatory crackdown on risky lending practices.
The dollar remained in the doldrums too. It dipped to a 6-1/2-month low against a basket of other major currencies as low 10-year U.S. Treasury yields continued to underscore fading expectations for fiscal stimulus from the Trump administration.
The White House will present Trump's first full budget plan to lawmakers on Tuesday. Its proposals include a $3.6 trillion cut in government spending over 10 years, balancing the budget by the end of the decade.
Congress holds the federal purse strings and often ignores presidential budgets, which are proposals and may not take effect in its current form.
But the plan, which advocated selling half of strategic U.S. oil reserves, weighed on crude futures, offsetting optimism over expectations that other major oil producers would agree to extend supply curbs this week.
Global benchmark Brent retreated 0.8 percent to$53.44 a barrel.
U.S. crude futures gave up all their earlier gains to edge lower to $50.71, after hitting their highest level in more than a month earlier in the session.
The weaker dollar, meanwhile, lifted gold slightly. Spot gold climbed 0.1 percent to $1,261.56 an ounce in its third straight session of gains.
"This broad dollar weakness remains," Saxo Bank's head of FX strategy John Hardy said.
(Additional reporting by Jonathan Cable and Abhinav Ramnarayan in London; Editing by Raissa Kasolowsky)