Signs of resilience in China's slowing economy on Thursday helped end a 3-day selloff in world equities prompted by talk the U.S. Federal Reserve could soon wind back its stimulus programme.
China's reported its exports and imports had rebounded surprisingly strongly in July, easing fears that a slowdown in the world's second largest economy will threaten the improving outlook in Europe and the fragile recovery in the United States.
However, analysts were cautious about reading too much into the trade numbers, and warned any rebound was unlikely while the government pushes ahead with its policy of shifting the giant economy away from debt-funded investment and manufacturing.
"These are fairly uninspiring numbers. They're probably not strong enough yet to convince us the worst is behind us," said Chris Scicluna, head of Economic Research and Daiwa Capital Markets.
Asian shares outside Japan took a boost from the data, adding 0.8% to recover more than half their previous day's losses.
While the commodity-linked Australian dollar rose 0.9% to $.09073, copper hit its highest price in nearly two months and Brent oil edged towards $108 a barrel, snapping a four-day decline.
However, "We're in the seasonally slower months for (commodity market) demand, so we're still expecting a bit of near-term weakness," Natalie Rampono at ANZ Bank said.
Even so, the Chinese data drove an upsurge in investor appetite for mining and basic resource stocks which took Europe's broad FTSE Eurofirst 300 index up 0.25% by mid-morning.
MSCI's world equity index edged up 0.1% as a result although it is still on course for its worst weekly decline since late June, when speculation of an early end to the Fed's stimulus programme first surfaced.
U.S. stock index futures signalled Wall Street could snap its 3-day losing streak as well when trading opens.
The dollar languished at seven-week lows against other major currencies due to the uncertainty over when the Fed could begin to cut back on the $85 billion it spends each month buying bonds to boost the economy.
"There are uncertainties about the timing of Fed tapering, whether it will be September or later, and about how fast they will start reducing their bond-buying programme," said Niels Christensen, currency strategist at Nordea.
The dollar index dropped to 81.167 on Thursday, bringing its losses to 4% in just a month while the euro rose to a seven-week high of $1.3353.
Traders have been betting the Fed would be well ahead of other central banks in scaling back its easy money policy, and believe the resulting difference in government bond yields will make the dollar more attractive.
But inconclusive economic data and mixed comments from Fed officials have made the timing of the move less clear, easing yields on U.S. government debt back from their highs.
Ten-year U.S. Treasury note yields have edged down to 2.6% from 2.755 percent recorded in early July.
Ten-year German bond yields eased in line with the U.S. market, dipping 2.2 basis points to 1.67% with news out of Japan was also supporting prices.
Japanese investors piled into foreign bonds in July, making their biggest net purchase in three years – early evidence that Prime Minister Shinzo Abe's expansionary policies are having the desired effect.
German debt and equity market showed little reaction to weak trade data, with analysts saying the poor June performance was more than compensated for by startling jumps in industry orders and factory output in July.
"Trade probably didn't provide any support to Germany in the second quarter and yet that growth looks to have been pretty good," said Daiwa's Scicluna.
Economist reckon Europe's largest economy picked up momentum in the second quarter after a fairly anaemic first three months when it expanded at just 0.1%.