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updated: 2/5/2013 7:19 AM

European recovery hopes help shore up markets

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Associated Press

LONDON -- Markets recovered Tuesday, a day after suffering steep losses, as new indicators suggested the economy of the 17-country eurozone may be on the cusp of recovery.

A survey of the manufacturing and services sector across the currency union showed activity rose to a 10-month high January. Though it showed the economy as a whole was still likely contracting, the improvement suggests a recovery may be slowly taking hold.

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"January's survey added to hopes that the pace of contraction will slow in Q1," said Jennifer McKeown, senior European economist at Capital Economics.

By late-morning in Europe, Germany's DAX stock index was up 0.2 percent at 7,653 while France's CAC 40 was 1.1 percent higher at 3,699. Britain's FTSE 100 was 0.6 percent higher at 6,282.

Spanish and Italian indexes, which had led markets around the world sharply lower on Monday due to concerns over the political situation in both countries, led the recovery. Madrid's IBEX was 1.5 percent higher while the FTSE MIB in Milan was up 1.1 percent.

Italy's general election at the end of this month looks like it may yield a split parliament, which would make it more difficult to push through much-needed economic reforms. Meanwhile, the Spanish government is embroiled in a corruption scandal over alleged secret cash payments that has raised questions over the future of Prime Minister Mariano Rajoy.

Wall Street was expected to rise at the open, with Dow futures 0.3 percent higher at 13,887 and the broader S&P 500 futures up 0.4 percent at 1,499.

The most eye-catching piece of economic news later will be the Institute for Supply Management's non-manufacturing survey. Investors are keen to see whether it echoes the positive manufacturing report that was published last Friday.

Earlier in Asia, markets mostly dropped as they responded to the losses suffered in Europe and the U.S. on Monday.

The regional heavyweight, Japan's Nikkei 225, dropped 1.9 percent to 11,046.92 while Hong Kong's Hang Seng plunged 2.3 percent to 23,148.53.

Australia's S&P/ASX 200 lost 0.5 percent to 4,882.70. The only gainer among major Asian markets was China's Shanghai Composite Index, which added 0.2 percent to 2,433.13.

China's economy is limping out of its deepest slump since the 2008 global crisis but optimism has been tempered by warnings the recovery could be threatened if trade or investment weakens.

A business group, the China Federation of Logistics & Purchasing, said its index of service industry activity rose marginally to 56.2 in January from 56.1 in December. The measure of new orders declined, which "casts doubt on the strength of the recovery in the service sector," said Nomura economist Zhiwei Zhang in a report.

In other markets, the benchmark crude oil contract for March delivery rose 43 cents to $96.60 per barrel in electronic trading on the New York Mercantile Exchange.

The dollar rose against the Japanese yen to 92.95 yen from 92.38 yen late Monday in New York, while the euro rose to $1.3539 from $1.3520.

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