The famous euro sign landmark is seen through the lights of a passing tram outside the former headquarters of the European Central Bank (ECB) in Frankfurt, Germany, January 19, 2016.
The euro hit its lowest in almost three years against the yen and Europe's shares extended their best run of the year on Tuesday, as data from the region's big economies bolstered the case for another strong dose of ECB stimulus next week.
Euro zone manufacturing activity expanded at its weakest pace for a year last month as deep price discounting failed to put a floor under slowing order growth.
Markit's Purchasing Managers' Index (PMI) will make gloomy reading for the European Central Bank, coming little more than a week before its next policy setting meeting
where it is expected to increase its support programme.
where it is expected to increase its support programme.
Britain's FTSE 100 .FTSE climbed 0.6 percent, Germany's DAX .GDAXI jumped 1.3 percent and France's CAC 40 .FCHI rose 0.4 percent after Asian markets had also risen after weak Chinese manufacturing and service surveys fanned stimulus hopes there.
The yen eased back in early European trading but was still hot to the touch having completed its best month against the dollar JPY= since 2008 and reached its highest against the euro EURJPY= since April 2013. [FRX/]
That was despite Japan becoming the first major G7 economy to sell 10-year government bonds at a negative yield, something that would usually make the currency less attractive as investors effectively pay rather than get paid to hold them.
"The yen strength right now is largely being dominated by (weak) risk appetite," said UniCredit's Global Head of FX Strategy Vasileios Gkionakis.
On the euro he added: "There is no doubt the low inflation and the soft economic data is keeping the pressure on the ECB to do something next week."
There was a glimmer of hope for the central bankers though as Brent oil prices LCOc1, the big downward force on inflation for the last two years, hit their highest level since the start of the year having just seen their best month since August.[O/R]
It helped German Bund yields nudge off 10-month lows after the previous day's deeper than expected fall in euro zone consumer prices had seen the bloc's inflation expectations EUIL5YF5Y=R fall to their lowest on record.
The European Central Bank is expected to cut its deposit rate by at least another 10 basis points next week ECBWATCH and add to its 1.5 trillion euro bond buying scheme.
CAUTION FRAGILE CHINA
Later in the day, U.S. manufacturing and services sector data will feed the constantly evolving view of whether the Federal Reserve can continue to squeeze up interest rates in the world's largest economy this year.
In Asia overnight, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ended up 1.3 percent, as Chinese stocks .CSI300 climbed 1.8 percent after Monday's easing move from the PBOC as it cut banks' reserve requirements.
There was a widespread feeling more stimulus is likely. Official data on Tuesday showed activity in the country's giant manufacturing sector shrank for a seventh straight month in February and faster than expected.
The services sector did expand although it was at the slowest pace since late 2008 and the private Caixin/Markit China Manufacturing Purchasing Managers' Index came in short of both market expectations and the previous month's reading.
"We think the PBOC easing is consistent with continued weaker-than-expected economic activity and downside risks to growth," wrote Jian Chang, an analyst at Barclays. "It should help to support market sentiment in the near term."
Japan's Nikkei .N225 erased losses and ended up 0.4 percent although the yen's hot streak continued to drag back a market that has slumped 15 percent this year.
Against the perceived safe-haven yen, the common currency clawed back some territory and rose 0.2 percent to 122.73 EURJPY=R, after earlier dropping as low as 122.085, which was its lowest level since April 2013.
The dollar was buying 112.75 yen JPY=, edging up about 0.1 percent, while the Australian dollar added 0.2 percent against its U.S. counterpart to $0.7155 AUD=D4 after the Reserve Bank of Australia left its rates at a record low 2.0 percent.
(Additional reporting by Lisa Twaronite in Tokyo; Editing by Janet Lawrence)
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