Signs of a global economic slowdown and stresses in Europe's financial system kept investors cautious on Thursday, causing losses in Asian markets, limiting gains in Europe and keeping the euro near 11-month lows.
Surveys showed Japanese business confidence and Chinese manufacturing had both slipped, while European industrial and services sectors continued to contract, though less than expected.
Concerns over Europe's debt crisis are squeezing credit conditions for banks in the region. The fear that a bank might not be able to withstand losses on its holding of shaky government bonds makes the banks less inclined to lend to each other, as they normally do to fund their hugely expensive daily operations.
Many banks are relying on cheap credit from the European Central Bank for that money, but in the meantime they are cutting down on lending to businesses and households.
As a result, the real economy in Europe is sliding toward recession.
The purchasing managers' index published by financial data company Markit showed euro-zone manufacturing and services output contracting for a fourth month in December, although not as much as economists were expecting. The combined index for the two sectors stood at 47.9 in December, up from 47.0 in November. A figure below 50 indicates contraction.
A day after suffering sharp losses, European stocks rose slightly. Britain's FTSE 100 advanced 0.5% to 5,395.37. Germany's DAX gained 0.9% to 5,727.67 and France's CAC-40 added 0.6% to 2,993.30.
Wall Street was likewise headed for modest gains Thursday morning, with Dow Jones industrial futures up 0.2% to 11,784 and S&P 500 futures gaining 0.5% to 1,211.80.
The euro was steady at 1.2993 U.S., near its lowest levels so far this year.
Since European leaders reached an agreement to rein in future government budget deficits last week, investors and credit rating agencies have criticized the deal for failing to address current problems.
Italy had to pay higher interest rates in its last bond auction of the year on Wednesday. The longer the country's borrowing rates remain high, the bigger the financial burden will be. The higher rates reflect rising doubts that the country will be able to repay its debts.
The Italian government will hold a confidence vote on its €30 billion ($39 billion U.S.) package of tax hikes and spending cuts that have been hotly contested by lawmakers and unions.
