LONDON: The euro retreated while stocks and bonds rallied on Thursday, as painful data from France and only modestly better readings from Germany set the tone for the European Central Bank's first meeting of the year.
Progress, or lack of it, in U.S.-China trade talks was also in focus, as were signs of a Brexit delay, while the Emerging-market bulls were still charging into Venezuela after a U.S. move against the country's president, Nicolas Maduro.
The ECB left euro zone interest rates firmly in sub-zero territory but traders were waiting to see how much concern the central bank's chief Mario Draghi shows at his 1330 GMT news conference after a blizzard of glum data.
In France earlier, a survey showed business activity had pulled back at the fastest rate in more than four years in the face of weakening demand and the impact of anti-government protests.
Germany's services sector accelerated more than expected, but that was largely offset by the first contraction in manufacturing in more than four years.
The euro fell 0.2 percent to $1.1350 , and while an upbeat tech sector helped stocks, it meant there would be plenty of concerned questions for European Central Bank President Mario Draghi later.
"At the moment their guidance (to raise interest rates later this year) isn't really on track," said JPMorgan Asset Management fixed income portfolio manager Seamus Mac Gorain, although he added it was probably still too early to change them dramatically.
Traders were clearly expecting some comforting words at the upcoming Draghi news conference at 1330 GMT.
Benchmark euro zone bond yields were lower across the board and France's gloomy data had pushed its 10-year yield down to a six-month low of 0.61 percent.
The main market gauge of euro zone inflation expectations also dropped to a seven-month low while futures prices pointed to modest gains for Wall Street main markets later.
"We think the ECB might be changing its tone a little bit from saying the risks to the growth outlook are broadly balanced to saying the risks to the growth outlook are tilted to the downside," said Wouter Sturkenboom, chief investment strategist for EMEA and APAC, Northern Trust Asset Management.
TRADE TALKS
Overnight in Asia, the mood was also cautious. MSCI's broadest index of Asia-Pacific shares outside Japan added 0.3 percent, helped by modest gains in China. Japan's Nikkei eased 0.1 percent.
China had taken positive cues from financial firms' profits and the approval for a new technology board in Shanghai. Wall Street had also ended higher after upbeat earnings reports, including from IBM.
However, White House economic adviser Kevin Hassett said in a CNN interview that the U.S. economy might see zero growth in the first quarter if the partial government shutdown lasts the entire quarter.
Japan's subdued day had also come its export orders fell at the fastest pace in 2 1/2 years, confirming that slower growth is hitting another major developed economy.
U.S. President Donald Trump said on Wednesday trade talks with China were going well and China "very much wants to make a deal." But sources familiar with the talks say the two sides are still far apart on structural elements critical for a deal.
Analysts at Capital Economics warned that China's economic slowdown looks set to be of a similar scale to 2015-16, though there are some differences, notably less pressure on the yuan and no signs of major capital outflows.
"Since China makes up 19 percent of the world economy, the slowdown this year compared to last will knock 0.2 percentage points off global growth," they said.
CARACAS SPRING?
In currency markets, the dollar rebounded in European trading. It was at 109.74 yen after reaching its high for the year, 110.00 yen against the Japanese currency.
Sterling eased off its 11-week high of almost $1.31 amid growing signs that Brexit was more likely to be delayed than the government risking leaving the European Union without a deal on March 29.
The euro's latest slide means it has now lost more than 1.5 percent against the U.S. dollar since climbing to a three-month high of $1.1570 on Jan. 10.
The Australian dollar also suffered a setback when one of the country's major banks raised mortgage rates, bolstering the case for a cut in official rates.
The yield on benchmark 10-year Treasury notes fell to 2.719 percent, compared with its U.S. close of 2.755 percent on Wednesday. Oil prices dropped amid concern over slowing global economic growth.
U.S. West Texas Intermediate (WTI) crude futures fell 0.6 percent to $52.27 a barrel. Brent crude futures were last down 0.7 percent at $60.69.
Traders had reversed earlier price gains made on the potential for U.S. sanctions on Venezuela which has the potential to reduce supply.
Venezuela's dollar bonds had enjoyed their best day in years on Wednesday when the U.S. backing for opposition leader Juan Guaido spurred investor hopes for a turnaround in the impoverished country.