European markets pause after heady start to year

LONDON -- European stock markets took a breather Tuesday following the best New Year start since 2003 as investors looked ahead to a big week of economic data releases around the world.

In Europe, the FTSE 100 index of leading British shares was up 3.87 points, or 0.1 percent, at 5,504.21 while Germany's DAX fell 4.94 points, or 0.1 percent, to 6,043.36. The CAC-40 in France was 5.46 points, or 0.1 percent, lower at 4,008.51.

On Monday, stock markets, particularly in Europe and the U.S., kicked off the year with a flyer after strong manufacturing data stoked hopes that the economic recovery this year may be stronger than anticipated.

Asian markets joined in the early year advance earlier, with Hong Kong's Hang Seng up 456.30 points, or 2.1 percent, to 22,279.58 and Shanghai's main stock measure climbing 1.2 percent to 3,282.18 after falling the day before. Tokyo's Nikkei 225 stock average added 27.04 points, or 0.3 percent, to 10,681.83, its advance curtailed in the afternoon session on selling of exporters as the yen climbed again the dollar.

Monday's manufacturing data kicked off a big week in terms of economic releases. Most attention will likely center on Friday's U.S. nonfarm payrolls data for December and many in the markets expect the first job creation in two years -- the jobs data often set the stock market tone for a week or two. Others include global services activity data on Wednesday and a raft of speeches from U.S. Federal Reserve officials.

The likely key driver to stock market performance this year will be whether the economic figures back up the optimism that is evident in company valuations following a nine month bull run.

Stock markets around the world rallied strongly since March's lows -- the Dow and the S&P 500 for example surged more than 60 percent since then -- as investors grew more optimistic about the global economic recovery after central banks and governments pushed through extraordinary policy measures to mitigate the deepest recession since World War II.

With trading volumes still relatively low as many traders remain on holiday, analysts warned that there could be an element of profit-taking before Friday's key U.S. jobs data.

"Many are now cautious of profit takers ahead of some key economic data later in the week," said James Hughes, market analyst at CMC Markets.

Wall Street was poised for a flat opening after Monday's big advance -- the Dow Jones industrial average closed 1.5 percent higher at 10,583.96 while the broader Standard & Poor's 500 index ended 1up 1.6 percent at 1,132.99.

Elsewhere in Asia, Australia's market was up 1 percent, helped by stronger commodity prices while Singapore's index gained 0.8 percent. However, South Korea's Kospi edged down 0.3 percent to 1,690.62.

Oil prices extended their gains, with benchmark crude for February delivery up 24 cents at $81.75 a barrel. The contract jumped $2.15 overnight.

The dollar slipped 0.7 percent to 91.90 yen while the euro edged up 0.1 percent to $1.4421.

The U.S. currency, which has enjoyed big gains over the last month or so, was back under pressure after U.S. Federal Reserve official Eizabeth Duke said the central bank had to keep interest rates at ultra low levels for a while yet, despite mounting signals of an improving U.S. economy.

As in the stock markets, all eyes in the currency markets will be on Friday's U.S. jobs data and how the dollar reacts.

"We look to the upcoming labor data to see if the negative correlation between the dollar and risk appetite either reasserts itself or resumes its weakening trend from December," said Gareth Berry, a currency strategist at UBS.