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GLOBAL MARKETS-China, Europe data keep world stocks buoyant

Published 02/15/2011, 07:16 AM

* China inflation, European growth keep stocks higher

* World stocks near 30-month highs

* Euro zone periphery concerns hold back euro

By Jeremy Gaunt, European Investment Correspondent

LONDON, Feb 15 (Reuters) - Chinese inflation data helped ease investor concerns on Tuesday that the world's No 2 economy will have to tighten monetary policy more aggressively, while steady, if disappointing, European growth figures kept stocks buoyant.

Wall Street looked set for modest gains at the open.

The dollar was weaker against a basket of major currencies, and the euro rose despite worries about euro zone debt rising up again.

World stocks as measured by MSCI were up 0.2 percent, not far from last week's 30-month highs. Japan's Nikkei logged a 10-month closing high and Europe's FTSEurofirst 300 was up 0.1 percent.

Data showed that the euro zone economy ended last year with stable growth, but it failed to meet expectations for an acceleration as expansion in the three largest nations fell short of forecasts and Greece and Portugal contracted.

Countering this, German analyst and investor sentiment rose slightly in February amid confidence in Germany's economic recovery, a survey by the ZEW economic think tank showed.

"As we all know there was a cold snap in December, which disrupted construction and trade activity, and the acceleration in industrial activity was insufficient to offset this, so the underlying picture looks more benign," said Martin van Vliet at ING. China's inflation was lower than expected at 4.9 percent in the year to January.

Although price pressures continued to build and will force the central bank to stick to its course of gradual monetary tightening, the report took the edge off concern about firmer action.

"The data probably slightly eased expectations of immediate tightening, although in the overall scheme of things, this doesn't change the fact that China is still in a tightening phase," said Etsuko Yamashita, chief economist at SMBC.

Inflation pressures, particularly in emerging markets, have been part of the motivation this year for investors to move into developed stock markets.

A number of those countries are also having problems, however, particularly Britain, which came in at an annual 4.0 percent. U.S. consumer price data, meanwhile, will be reported on Thursday.

EURO PERIPHERY

The euro gained on higher demand from Middle East and Asian investors, but it was undermined by scepticism over how euro zone leaders would come up with a quick and effective solution to tackle its debt crisis.

Peripheral euro zone yield spreads have been widening in the past week on uncertainty over a rescue package for the region, and there was some disappointment after a meeting of European finance ministers on Monday.

"Initial optimism at the beginning of the year over a comprehensive bailout package in the euro zone is now starting to fade away," said Lee Hardman, currency strategist at BTM UFJ.

The euro was up 0.3 percent at $1.3534, not far from a three-week low of $1.3428 hit on Monday.

The 10-year German bond yield was up 3 basis point at 3.32 percent, while the two-year yield rose 2 basis points to 1.44 percent. (Additional reporting by Neal Armstrong; editing by Patrick Graham)

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