LONDON (Reuters) - World share markets extended a week-long rally on Thursday as manufacturing surveys in China and the United States boosted confidence over global growth and euro zone data at least didn't worsen the already weak outlook for the region.
The euro also touched a three-week high against the dollar on renewed optimism that a Greek funding deal will eventually be agreed, and despite the data indicating the region's economy is on course for its deepest downturn since early 2009.
"The driving factors behind euro/dollar are that the global macroeconomic backdrop seems to be improving and people are pricing out the tail risk on Greece," said Arne Lohmann Rasmussen, head of currency research at Danske Bank.
The euro rose 0.4 percent to $1.2884, its highest level since November 2.
The prospect of a deal to help Athens was boosted when German Chancellor Angela Merkel said on Wednesday, after the failure of overnight talks, that an agreement was possible at a euro zone ministers meeting on Monday.
The hopes for a Greek deal, combined with the better economic data and a growing view that a resolution can be found to the U.S. fiscal crisis, lifted the MSCI world equity index 0.35 percent to 326.1 points, putting it on track for its best week since mid-September.
Europe's FTSE Eurofirst 300 index rose 0.4 percent to a two-week high of 1,102.25 points, with London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX between 0.3 and 0.8 percent higher.
However, trading was subdued, with U.S. markets closed for the Thanksgiving holiday.
CHINA BOOST
Confidence in the global economic outlook got its biggest boost from the HSBC flash Manufacturing Purchasing Managers Index (PMI) for China, which pointed to expansion in activity after seven consecutive quarters of slowdown.
"There have been a lot of concerns regarding the outlook for global growth. In this context, any improvement in Chinese data is welcome, given that investors are still risk averse," said Robert Parkes, equity strategist at HSBC Securities.
The Chinese data followed a report on Wednesday showing U.S. manufacturing grew in November at its quickest pace in five months, indicating strong economic growth in the fourth quarter.
PMI data on the manufacturing and services sectors in Europe's two biggest economies of Germany and France added to the better tone, revealing that conditions had not worsened in November, though both economies are still contracting.
However, the PMI numbers for the wider euro zone remain extremely weak, pointing to the recession-hit region shrinking by about 0.5 percent in the current quarter - its sharpest contraction since the first quarter of 2009.
"The weak PMI outturn for November is a major disappointment in light of the increases in the German and French PMI surveys, and suggest the recession on the euro zone's periphery is gathering further pace," said ING economist Martin van Vliet.
BOND DEMAND
In the fixed-income markets the improving tone enabled Spain to sell 3.88 billion euros ($4.97 billion) of new government bonds on Thursday, even though it has already raised enough funds for this year's needs.
The average yield on the three-year bonds in the auction was 3.617 percent, compared with 3.66 percent at a sale earlier in November and a 2012 average of 3.79 percent.
Ten-year Spanish yields were 7 basis points lower on the day at 5.66 percent, having traded above 6 percent at the start of the week.
"It's a clear reflection that sentiment in Spain has improved markedly," RIA Capital Markets bond strategist Nick Stamenkovic said. "They are already funded for 2012, and the market is betting that Spain will ask for a bailout early next year when they face a (wall of issuance)."
Expectations that Greece will soon get more cash set Greek yields on course for their 10th consecutive daily fall. The February 2023 bond yield dropped to 16.16 percent, its lowest since it was issued as part of a debt restructuring in March.
COMMODITIES STEADY
Commodity prices gained some support from the improving outlook for world demand from all the PMI data, but the prospect of only modest global growth in 2013 kept the gains in check.
Three-month copper on the London Metal Exchange rose 0.7 percent to $7,744.75 a metric tonne, and spot gold inched up to $1,729.56 an ounce.
Oil prices were more mixed as the ceasefire between Israel and Gaza's Hamas rulers on Thursday eased concerns over the impact the unrest may have on supply from the region offsetting support from the prospect of greater Chinese oil demand.
Brent slipped 30 cents to $110.56 a barrel, while U.S. crude was up 3 cents at $87.41.
($1 = 0.7801 euros)
(Additional reporting by Jessica Mortimer and Marius Zaharia; Editing by Will Waterman)
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Global shares gain as economic outlook improves
