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LONDON (Reuters) - The euro hovered near a two-week low and European shares rose on Friday after the European Central Bank rekindled expectations that it could again take the knife to interest rates.
Strong Chinese trade data also helped lift optimism about global growth prospects, boosting oil, copper and Asian shares, although investors booking profits before next week's Chinese new year holidays limited gains.
ECB President Mario Draghi levered the door to a rate cut back open on Thursday, saying the bank would monitor the potential downward pressure of a strengthening euro on already near-target inflation.
European share markets opened higher on the hopes lower borrowing rates would also reverse some of the 8 percent trade-weighted rise in the euro over the last six months that has began to weigh on exporters.
"We're in a 'risk-on' mode and continental Europe should continue to do well in this environment," said Cyrille Urfer, who heads up asset allocation at Swiss bank Gonet.
The pan-European FTSEurofirst 300 was up 0.5 percent by 0815 GMT, though it remained on course for its second weekly loss in a row.
London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were up 0.6, 0.4 and 0.3 percent respectively and U.S. stock futures pointed to a steady Wall Street start.
While Draghi said the euro's recent surge was a sign of a return of confidence, he said: "We certainly want to see whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned."
The comments went further than many analysts had expected and as European trading gathered pace the euro steadied at $1.3398 after earlier dropping to $1.33705, the lowest since January 25.
China said its exports grew 25 percent in January from a year ago, the strongest showing since April 2011 and well ahead of market expectations for a 17 percent rise, while imports also beat forecasts, surging 28.8 percent on the year.
The MSCI's broadest index of Asia-Pacific shares outside Japan added 0.3 percent and Australian shares rallied 0.7 percent to 34-month highs.
"China's economic conditions are improving and the trade data confirms the continuation of a recovery trend. Not just the trade data but retail, production and investment flows clearly show that the economy bottomed out in the third quarter last year," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.
In the bond market, benchmark German Bund futures were little changed in early trade as Draghi's cautious tone on the euro zone's economy underpinned demand for low risk assets.
Investors focused on Irish bonds after benchmark 10-year yields slid to their lowest since before the start of the subprime crisis in 2007 on news Dublin had clinched a bank debt deal that will cut its borrowing needs over the next decade.
Additional reporting by Sudip Kar-Gupta; editing by Philippa Fletcher