LONDON (Reuters) - The latest massive cash injection by the European Central Bank helped lift European stocks on Thursday but the euro stayed weak amid signs growth in the region's economy is stagnating and further U.S. monetary easing could be on hold.
U.S. stock markets are expected to open higher with the focus on key jobless claims and factory activity data.
The cheap ECB money gave a big boost to banks, particularly in Italy where they benefited from a sharp fall in the country's borrowing costs linked to the liquidity splurge.
Italian government 10-year debt yields fell to levels not seen since last August and interest rates in other heavily-indebted European nations, such as Spain, also declined.
However, with the prospect of strong recovery in the global economy darkening at a time when central banks are running out of policy options and reluctant to do more, the euro stayed in a narrow range just above one-week lows at around $1.3332.
"Clearly the euro zone crisis is having an impact upon global activity, and that is going to be a theme for some time to come," said Peter Dixon global equities economist at Commerzbank.
The euro zone Manufacturing Purchasing Managers' Index (PMI) rose to 49.0 last month from January's 48.8, and has been below the 50 mark that divides growth from contraction since July.
The weak European reading contrasted with a similar survey in Asia which showed the region's manufacturing powerhouses perked up in February [ID:nL4E8E110A], and signs the U.S. economy is enjoying a very modest recovery.
Markets are expecting a key gauge of U.S. manufacturing activity, the ISM index, due out later to show a fourth straight monthly improvement in February.
Global manufacturing PMIs: link.reuters.com/byv24s
European manufacturing PMIs: link.reuters.com/hup24s
Global government yields: link.reuters.com/ser95s
The moderate U.S. recovery was the main reason seen for Federal Reserve Chairman Ben Bernanke on Wednesday to make no mention of plans by the central bank to undertake further bond purchases, which many in the market had been expecting, in remarks to key political leaders.
The hints of a pause in U.S. policy easing saw equity markets on Wall Street ease on Wednesday .N, a move echoed in Asia's session despite the better factory data, sending the MSCI
world equity index .MIWD00000PUS down 0.2 percent.
On Thursday the FTSEurofirst 300 .FTEU3 index of top European shares rose 0.7 percent at 1,082.587 points, but were still within a sideways channel that has lasted a week.
The European Central Bank's second and massive 529.5 billion euros ($708 billion) injection of money into the region's banking system, Bernanke's remarks, and the improving economic data from the U.S. and Asia have begun to weaken expectations for further monetary easing.
A Reuters poll of economists showed on Thursday that concerns over high oil prices and the impact of the huge cash boost for euro zone banks will keep European Central Bank interest rates at 1.0 percent into next year.
Meanwhile Wednesday's injection of cash by the ECB had a big effect on the euro zone debt market with Italian government bond yields now closer to safe haven German government debt than they have been since September last year.
The 10-year benchmark Italian government bond yield was around 5.0 percent on Thursday, having dipped under that level briefly, while the two-year bond fell below two percent for the first time since November 2010.
Spain sold 4.5 billion euros of short and medium-term government bonds at lower yields than at previous sales as the ECB cash boosted domestic demand for its debt.
The average yield on Spain's 2015 bond fell sharply to 2.617 percent from 3.332 percent the last time it was sold on February 16.
The improved factory data from Asia and the modest recovery in the U.S. talked about by Bernanke gave oil a lift with Brent crude oil rising above $123 a barrel.
The front month Brent crude futures prices rose 58 cents to $123.24 a barrel, rebounding from an earlier decline to as low as $122.49. U.S. oil was up 7 cents to $107.13.
($1 = 0.7476 euros)
Additional reporting by Jessica Mortimer; editing by Ron Askew