Hints that a slowdown in China’s economy may be levelling out pushed stock markets up on Tuesday, while euro bears and bond investors had second thoughts about sky-high expectations of European Central Bank easing later this week.

China’s official Purchasing Managers' Index reached a three-year low in November. But the private Caixin/Markit China Manufacturing PMI showed factory activity contracted at a slower pace than in October, fuelling hopes the economy may have been bolstered by government support.

While European stocks followed Asian shares higher, bond yields ticked higher and the euro bounced off a 7 1/2-month low on concern the ECB may not deliver all the stimulus on Thursday that investors have come to expect.

Markets are already pricing in a deposit rate cut and an increase in the size, scope and length of the ECB’s trillion-euro bond buying programme. Analysts say it would be hard for ECB President Mario Draghi to surprise markets.

“The big question is if Draghi can surprise the markets, given that ECB by its own comments has contributed to quite stretched market expectations,’’ said SEB head of fixed income research Jussi Hiljanen.

The FTSEurofirst 300 rose 0.5 per cent, following a 1.8 per cent rise in MSCI’s broadest index of Asia-Pacific shares outside Japan. Japan’s Nikkei ended up 1.3 per cent, closing above the 20,000 level for the first time since August.

Britain’s FTSE 100 rose 0.7 per cent. UK-listed banks gained after the Bank of England announced the results of its bank “stress tests’’ and said credit conditions in the country had largely recovered from the financial crisis.

Wall Street lost ground overnight, though major US indexes still gained for the second straight month and US stock futures added 0.4 per cent in early European trade.

Benchmark German bond yields rose for the second straight day, coming off a one-month low hit on Friday. The euro rose to $1.0586, after dropping to a 7 1/2-month low of $1.0557 on Monday.

China’s yuan was flat in onshore trading, after the International Monetary Fund on Monday admitted the yuan into its Special Drawing Rights (SDR) basket alongside the dollar, euro, pound sterling and yen.

The widely expected move was a milestone in China’s integration into global finances and a nod of approval to the country's reforms.

“What is interesting about the new weightings is that the biggest change is for the euro, which now accounts for 30.9 per cent of the basket instead of 37.4 percent. While EUR/USD did not have much of a reaction to the news, it is certainly not positive for the currency,’’ Kathy Lien, managing director of FX strategy for BK Asset Management, said in a note to clients.

Against the yen, the dollar edged down about 0.1 per cent to 122.95.

The dollar index, which tracks the greenback against a basket of six major rival currencies, edged down to 100.00. That still left it within sight of the 100.39 the index hit in March, its highest in more than 12 years, on expectations Federal Reserve will raise US interest rates later this month.

By contrast, the Reserve Bank of Australia held rates steady at 2 per cent at its policy meeting. The Australian dollar rose about 0.7 percent after the decision, to $0.7277.

Australian shares rallied 1.9 per cent, extending gains, after trade data showed Australia’s economy gained last quarter from a rebound in resource exports.

US crude oil prices regained some ground after volatile trading overnight, when they first rallied and then erased gains after a survey estimated higher OPEC output. US crude added 0.4 percent to $41.84 a barrel.

Brent crude futures were up 0.3 per cent to $44.74.

Spot gold was up about 0.6 per cent at $1,070.40 an ounce, getting a reprieve as the recently robust dollar weakened and helped it move away from a nearly six-year low of $1,052.46 plumbed last week.

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