By By Kevin Plumberg
European stock index futures prices rose, tracking gains in Asia and earlier on Wall Street following surprisingly positive developments in the technology sector.
Though economic data remained dismal, analysts and fund managers also believe that massive government spending and tax cuts around the world will eventually trickle into economies, maybe later this year.
"Investors are looking to the future, seeking out industries that could benefit from government aid," said Zhou Lin, analyst at Huatai Securities in Nanjing.
Although risk taking among investors returned suddenly overnight, knocking down a closely followed market volatility index <.VIX> 18 percent, uncertainty about medium-term corporate earnings, global consumer demand and the banking industry kept the element of fear high.
A slew of reports in Asia showed a rapid drop in growth and collapse in export markets, suggesting it may be a while before a recovery takes hold and provides support for investor willingness to take risks. Chinese economic growth slowed to a seven-year low in 2008 and Japanese exports had a record decline in December.
"Across the region, a collapse in export growth has had direct flow-on effects to industrial production, and we are now seeing this start to impact employment, with household spending the next in line," emerging market strategists at Royal Bank of Canada said in a note.
Sterling fell back, having risen overnight on speculation UK policy makers might take more aggressive action to support their economy.
The MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> rose 1.5 percent though it remained close to a one-month low touched earlier in the session.
Trading volumes were quickly thinning ahead of lunar new year holidays across Asia next week.
Japan's Nikkei average <.N225> closed 1.9 percent higher after a late jump, boosted by property stocks when the Bank of Japan said it would accept bonds issued by real estate investment trusts as collateral for short-term cash.
Hong Kong's Hang Seng index climbed 2 percent, powered by a 5.3 percent rise in HSBC <0005.HK>. Shares of the largest European bank had plunged for eight consecutive sessions to a decade low on concern about the firm's access to capital.
However, sentiment remained fragile. For every positive development, there seemed to be two more negative ones.
IBM
However, given how badly corporate credit and almost every stock market were sold off last year, some large asset managers have begun to sift through corporate bonds and equities in search of bargains.
POUNDED
The British pound resumed a decline against the dollar back toward 23-year lows, cutting gains made after a source told Reuters that its slide will be discussed at the next meeting of the Group of Seven nations.
Sterling was down 0.5 percent to $1.3913 after dropping to near $1.36 on Wednesday.
"Sterling still looks far from hitting a bottom with mounting expectations for further and bigger interest rate cuts from the Bank of England to combat the quickly deteriorating economy," said a senior trader at a Japanese trust bank.
The U.S. dollar was steady at 89.35 yen, after rebounding from Wednesday's low of 87.10 yen, the lowest since July 1995.
The euro slipped 0.3 percent to 116.30 yen, and remained well above a 7-year low of 112.08 yen hit on Wednesday.
The yen's strength is causing increased concern among Japanese exporters as it creates an extra hurdle for sales in addition to waning global demand.
U.S. Treasuries, which have been in hot demand as the credit crisis has kept investors in need of liquidity and safety, rebounded after dropping overnight on worries about upcoming debt supply to finance various U.S. rescue packages.
The yield on the benchmark 10-year note, which moves in the opposite direction of the price, slipped to 2.53 percent from 2.54 percent late in New York.
U.S. crude futures steadied on Thursday, after rallying more than 6 percent the previous day, as traders weighed the impact of recent OPEC supply cuts and a weaker dollar.
Crude futures for March deliver -- which took over as the main front-month contract -- was nearly unchanged at $43.59 a barrel.
(Additional reporting by Satomi Noguchi in TOKYO; Editing by Neil Fullick)
