LONDON (Reuters) - Soothing data about China's economy provided some succour to investors on Wednesday although Europe's debt crisis rolled on with Irish government bond yields hitting record highs after a downgrade to junk.
European shares were higher after the previous session's losses and the euro reversed some of its recent weakness against the dollar.
Moody's downgraded Ireland's credit rating to junk status on Tuesday, the latest in a series of blows to European economies struggling to get out from under a huge debt mountain. Its 10-year bond yield rose close to 14 percent.
The rating agency warned that Ireland would likely need a second bailout. A week ago, it slashed Portugal's rating to junk status with a similar warning.
Investors are also beginning to fear that the crisis is spreading from the small euro zone economies onto the larger ones.
The International Monetary Fund called on Tuesday for "decisive implementation" by Italy to cut its public debt, as the country sought this week to calm market worries about the sustainability of its debt burden.
"The big countries are in this crisis now, it's getting pretty dangerous," one trader said.
On the global economic front, however, investors were lifted by China.
The country's annual gross domestic product grew 9.5 percent in the second quarter of 2011, above 9.4 percent forecast by a Reuters poll, despite a spate of monetary tightening measures from Beijing.
Retail sales in China grew 16.8 percent in the six months ended June, showing that domestic demand still held up relatively well despite policy tightening, China's statistics bureau said.
"What today's numbers are telling us is that higher rates are not having a sharply negative impact. We've seen the economy ratchet down a gear," said Adrian Foster, head of Asia Pacific financial markets research, at Rabobank in Hong Kong.
Although investors are concerned about overheating in China, they are perhaps more edgy at the moment about a hard landing which would strip growth across the world.
The China data lifted commodities, which in turn helped European shares shake off the debt crisis at least temporarily. The FTSEurofirst 300 index of top European shares was up 0.2 percent, ending a three-session sell off.
World stocks as measured by MSCI gained 0.4 percent, with Japan's Nikkei closing up the same and emerging market stocks up 0.9 percent.
The euro paused from its sell off but gains were seen likely to be checked by concerns about the debt crisis and a European Union leaders' emergency summit expected on Friday.
The euro was up 0.6 percent at $1.4061. It had fallen to a four-month low around $1.3838 on Tuesday, before recovering.
"The euro is very much vulnerable to any negative news about Italy or any peripheral euro zone country," said Niels Christensen, FX strategist at Nordea.
Additional reporting by Anirban Nag and Emelia Sithole-Matarise; Written by Jeremy Gaunt