LONDON (Reuters) - U.S. stocks are set to consolidate gains pending a slew of data that will be closely watched for further hints of the Federal Reserve's need to maintain some monetary support for the world's biggest economy.
China's rebounding factory sector and another month of strong private sector growth in the euro zone has buoyed global markets on Thursday, while U.S. stock futures tread water before manufacturing and labour market health checks.
"The markets will be looking for any clues of the Fed having to change course," said Emile Cardon, senior markets economist at Rabobank.
The United States endured a sluggish first quarter, with poor weather blamed for underwhelming data. This has given the Federal Reserve some pause for thought with minutes of its last policy meeting showing it was in no rush to raise rates.
Earlier in Europe, an unexpected pickup in the service industry was offset by lackluster factory activity, but was enough to show that the euro zone's fragile recovery has some traction.
Early readings from Germany, the bloc's industrial heartland, set a strong tone while France remained the laggard.
"This doesn't change the picture of the euro zone having one of its best growth spells in the past three years. It's broad-based, with the one exception being France," said Rob Dobson, senior economist at survey compiler Markit.
European stocks .FTEU3 initially rose 0.2 percent but then pared those gains, as worries around the French economy pulled the Paris bourse 0.3 percent lower on the day. .EU
China's manufacturing industry, while falling just short of overall growth, turned in its best performance this year, which initially buoyed appetite for riskier assets.
Low-rated euro zone bonds stabilised as expectations the European Central Bank will ease monetary policy overshadowed concerns about EU elections. <GVD/>
Voting begins on Thursday in the first European Union parliament election since the bloc's debt crisis blew up, and an expected rise in eurosceptic parties threatens to destabilize some governments or sway them to delay any painful economic reforms. <GVD/EUR>
The ECB has already strongly hinted it will cut rates at its June policy meeting, moving the deposit rate into unprecedented negative territory.
"If banks have to pay interest on the money they park in the euro system, this could revive the money market between banks, among others, and therefore also stimulate lending to businesses," said ECB Governing Council member Jens Weidmann.
Targeted measures aimed at boosting lending to small- and mid-sized firms and a program of asset purchases, known as quantitative easing, has also been mooted.
As well as nurturing growth, the bank wants to stave off deflation and cool a stubbornly strong euro. The euro was back under $1.37 on Thursday, towards the lower end of a very tight range it has held in all week.
Sterling fell against the dollar and the euro on Thursday after UK data showed a bigger-than-expected fiscal deficit, prompting some investors to take profits on the pound's recent rally to 5-1/2 year highs. <GBP/>
Markets looking for the Bank of England to raise rates early next year, and a surge in retail sales underlining the strength of the UK's recovery, is keeping the pound firm.
Elsewhere, the yen eased versus the dollar on Thursday and edged away from a 3-1/2-month high.
The yen has risen in recent weeks, partly because speculation has receded that the Bank of Japan will ramp up monetary stimulus.
One focal point for the yen is whether Japanese investors will step up their investment in higher-yielding overseas assets, at a time when domestic bond yields have been held low by the BOJ's massive monetary stimulus.
In a sign of such yield-seeking behavior by Japanese investors, Japan Post Insurance is investing more in Japanese stocks and foreign bonds, according to disclosures and a person with knowledge of the investment strategy.
Editing by Larry King/Ruth Pitchford