SINGAPORE Asian shares touched a 16-month high on Monday as investors took heart from rising factory output growth in China and a falling unemployment rate in the United States that raised hopes about the outlook for the world's top two economies.
The positive mood was tempered by Chinese trade data that saw both exports and imports come in below forecasts, but equities and commodities such as copper and oil remained in the black. European shares were seen opening flat-to-higher.
"At this point, bad data is not as much of a surprise for the market as good data is," said Christian Keilland, head of trading at BTIG in Hong Kong.
The euro was under pressure, having been knocked by the prospect of a recession in Germany and political uncertainty in Italy after Prime Minister Mario Monti, an investors' favourite, said at the weekend he intended to resign early.
MSCI's broadest index of Asia Pacific shares outside Japan inched up 0.2 percent and Tokyo's Nikkei share average firmed 0.1 percent.
Financial spreadbetters called London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX to open up about 0.1 percent.
The MSCI index rose more than 1 percent last week, its third successive weekly gain, taking it to levels not seen since early August 2011. There was a further boost for regional markets on Sunday when China reported a November pick-up in factory output and retail-sales growth to eight-month highs.
However, data released by China on Monday showed exports rose in November at a much weaker pace than expected, while imports were flat.
"The export slowdown shows external demand faces uncertainty due to concerns over the fiscal cliff in the US," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong. "Nonetheless it does not change our view that growth is on track for a strong recovery in Q4, as (growth) is mostly domestically driven."
On Wall Street, the Dow and S&P 500 had risen modestly on Friday after an unexpected fall in the U.S. jobless rate. S&P 500 futures were flat on Monday.
MARKETS WATCH ITALY
In Europe, investors will be hoping the weakness in external demand evident in the Chinese export number is not a pointer for German trade data due later on Monday.
The euro slid in early trading towards a two-week low of $1.2876 plumbed on Friday, before popping back above $1.29. Investors had sold the euro after Germany's central bank on Friday warned that the euro zone's biggest economy could soon enter recession.
Italian Prime Minister Monti's surprise announcement at the weekend came a few days after former Prime Minister Silvio Berlusconi abruptly withdrew support for Monti's technocrat government, formed over a year ago in an effort to restore Italy's credibility with investors.
"If Monti's pro-euro stance is to back off, that should raise concerns about the euro," said Junya Tanase, chief currency strategist at JPMorgan Chase in Tokyo.
Italian bond yields will be closely watched on Monday. The 10-year yield, the main barometer of investor confidence, stood at 4.5 percent at the end of last week, 323 basis points higher than the yield on the lower risk German equivalent but well below the 7.3 percent peak hit last year, when the spread over German Bunds hit 550 points.
The U.S. dollar rose about 0.3 percent against a basket of major currencies.
Commodity markets were also generally firmer, with copper, which draws strength from expectations of Chinese industrial demand, rising 0.9 percent to around $8,105 a tonne and oil rising around 0.5 percent.
Brent crude traded around $107.60 a barrel and U.S. crude fetched about $86.40.
"Investors are slightly more optimistic about China's economic recovery than before and that is supportive for oil," said Ken Hasegawa, a commodity sales manager at Newedge Japan.
The easy outlook for monetary policy continued to support gold, with the U.S. Federal Reserve expected to signal this week it will continue to pump money into the economy in 2013. Also, there was talk of a possible rate cut next year by the European Central Bank.
Spot gold firmed 0.2 percent to around $1,707 an ounce.
(Additional reporting by Thuy Ong in Sydney and Manash Goswami in Singapore; Editing by Richard Borsuk)