The rout in emerging markets eased on Friday and world shares headed for a second day of gains, as data suggesting the global economy is improving took the edge off concerns about the impact of a cut in U.S. monetary stimulus.
Europe's main stock markets started little changed after Asian shares and currencies saw an upbeat end to a torrid week that has wiped billions of dollars off of emerging markets for the second time since June.
MSCI's emerging share index managed its first gains after six sessions in the red and the selling of India's rupee subsided after the currency's worst week against the dollar in decades.
The relief rally was supported by a dip in U.S. bond yields, which edged back from the previous session's two-year high to 2.89% in early European trading, while the dollar steadied after hitting a three-week high.
"Hopefully the worst (of the emerging market selling) may now be over," said Hans Peterson global head of asset allocation at SEB investment management.
"It doesn't seem to be a repeat of the 1997 (Asian crisis) situation… and it seems like people are not so keen on being extremely short anymore so it might twist around a bit."
This week's market turbulence has being driven by growing evidence that the U.S. Federal Reserve is ready to start turning off the taps on its huge stimulus programme, a conviction that is being bolstered by strengthening global data.
Germany confirmed on Friday that its economy grew at a muscular 0.7% in the second quarter.
Purchasing managers surveys this week have already showed better-than-expected growth in the euro zone, a Chinese manufacturing rebound and U.S. manufacturing activity rising to a five-month high.
U.S. Treasury yields tend to set the benchmark for borrowing costs across the globe, so the recent rise – which is expected to continue – is making it more difficult for indebted countries and companies to pay their bills.
Singapore Finance Minister Tharman Shanmugaratnam said on Friday, however, that it would not be in anyone's interest for very low global interest rates to continue indefinitely, as this leads to financial imbalances.
DOLLAR EDGES HIGHER
The dollar touched a near three-week high versus the yen, supported by the rising U.S. bond yields and as Tokyo shares rose after business surveys suggested the global economy was improving.
In commodities trading, copper prices dropped 0.3% to $7,299 a tonne, but were supported by the Chinese manufacturing data that suggested demand from the world's second-biggest economy and top metals consumer could pick up.
Gold slipped slightly to $1,375.44 per ounce, heading for a small loss for the week. The precious metal was buoyed by the China PMI but at the same time pressured by upbeat global economic data and bets on Fed tapering.
Brent crude prices rose 0.2% to $110.06 a barrel. Rising political tensions in the Middle East and North Africa have bolstered oil prices this week, even as reports of some Libyan ports readying for exports eased supply concerns.
