LONDON European shares lost momentum on Wednesday and the euro slipped from a seven-week high as a disappointing Spanish bond sale and mixed data took the gloss off comments by China's new leader that had boosted hopes for global economic growth.
The FTSEurofirst 300 index, which has risen more than 5 percent in the last two weeks, was up less than 0.1 percent ahead of what was expected to be a slightly higher open by Wall Street, flagging badly having earlier come close to a 16-month high.
A mixed batch of business and retail data showed euro zone shoppers cut back on spending by the biggest margin in six months in October, while purchasing manager figures pointed to another quarter of recession.
"The economic data pretty much confirmed the (euro zone) economy is still in a very weak state," said Rabobank economist Elwin de Groot.
"The PMIs were slightly better than expected but still below the level that signals contraction, and retail sales were also pretty dire following a bad month the previous month. It confirms the recession is deepening."
The euro had surged to a seven-week high against the dollar and a 2-1/2 month high versus the Swiss franc in early trading, but went into reverse, falling to $1.3065 as markets digested the data and a disappointing Spanish bond sale.
Bond markets also reacted poorly to the auction, with Spanish 10-year yields rising 12 basis points to 5.39 percent and German debt futures hitting a session high.
Euro zone experts still expect Madrid to request a sovereign bailout which would pave the way for the European Central Bank to buy its debt, but doubts have started to creep in again following a drop in tensions and yields in recent weeks.
"Spanish yields are trading at quite tight levels so investors may be starting to get scared about whether the current level can be sustained in the near term," said Alessandro Giansanti, a rate strategist at ING in Amsterdam.
"This level of yields is implying that the Spanish government will ask for support in the next few months and if it doesn't happen it's quite likely that yields will start to move higher.
The dollar gained as the U.S. session neared, having earlier come under pressure from expectations of new bond buying by the Federal Reserve. U.S. stock futures pointed to a 0.1 rise on Wall Street when trading resumes.
U.S. manufacturing and employment data will be scrutinised for the impact of superstorm Sandy which shut down parts of the country's east coast last month. The "fiscal cliff" talks will also be in focus after President Barack Obama stuck to his case on Tuesday for raising taxes for wealthier Americans.
"The data today are important for the Fed decision next week. If employment remains high and the manufacturing index slows, it strengthens the case for more policy support," Rabobank's De Groot said, referring to expectations that the Fed will extend its bond buying programme.
The MSCI index of world stocks .MIWD00000PUS was clinging to gains after Asian equities had hit their 16-month high on remarks from Communist Party chief Xi Jinping that the Chinese government would maintain its fine-tuning of economic policies in 2013 to ensure stable growth.
Commodity markets opted to focus largely on the comments from the Chinese leader which fed hopes that growth in top energy consumer China will pick up sooner than expected.
Oil prices moved back above $110 a barrel after two sessions of losses and growth-attuned copper hit its highest level in nearly seven weeks. Gold also climbed over $4 to $1,700 an ounce as it moved away from a month low.
"Risk appetite is back," said one Singapore-based metals trader. "The general sentiment is that the U.S. fiscal problems will probably just be kicked down the road, and we may even see a short-term rally."
Wednesday's other main economic event in Europe came in Britain, where finance minister George Osborne presented a half-yearly budget statement.
Osborne warned a lengthier spell of austerity was needed as weak growth had left his original debt-cutting plans off track. The British economy is now forecast to grow by only 1.2 percent in 2013, well down from the 2 percent predicted in March.
Sterling had hit a one-month low against the euro of 81.45 pence in the run up to the speech but had made up some of the ground by 1400 GMT.
Compounding matters, PMI data showed Britain's dominant service sector grew last month at its slowest pace in nearly two years, confounding expectations for a pick up.
(Additional reporting by David Brett and William James; Editing by David Stamp and Alastair Macdonald)