LONDON (AP) - The euro drifted back from two-month highs against the dollar Monday as traders booked recent profits despite evidence that the eurozone economy has started the year at a fairly buoyant pace.
Stocks traded in narrow ranges ahead of another batch of earnings, mainly out of the U.S., and amid expectations that China will soon be tightening monetary policy to put a lid on rising inflationary pressures.
The most noteworthy market developments, though, centered on the euro currency, which earlier spiked to $1.3646, its highest level since Nov. 22. That proved to be a cue for investors to book some recent gains - just two weeks ago the euro was trading at a four month low of $1.2875.
The euro's return to favor has been largely due to waning concerns over Europe's debt crisis amid signals from policymakers that a comprehensive settlement is being discussed that will increase their firefighting powers and financial muscle.
"As the EU continues to attempt to adopt a more united front towards sovereign debt issues, bonds have responded positively," said David Buik, markets analyst at BGC Partners.
Despite the modest fall back, there are many in the markets who think that the euro will remain supported over the coming week, especially if the bond market pressures on countries like Portugal continue to subside.
"Although a correction is still possible in the near term, we do not envisage much from the scheduled economic, earnings and funding news to interrupt the current upward momentum in yields and in the currency this week," said Frederik Ducrozet, an analyst at Credit Agricole.
The euro has also been supported by positive economic news and market speculation that the European Central Bank might start raising interest rates sooner than anticipated in the wake of higher-than-expected inflation.
Monday's data provided further evidence that the eurozone economy as a whole continues to grow at a fairly steady pace.
Financial information services company Markit revealed that its monthly purchasing managers' index - a broad gauge of business activity - for the services sector rose by a point in January to 55.2 while the equivalent figure for the manufacturing sector remained elevated at 56.9 despite a modest decline from December's eight-month high of 57.1. Anything above 50 indicates expansion.
Though the headline figures showed that the eurozone economy is in fairly good health, they mask big disparities between countries. Germany, Europe's biggest economy, continues to power ahead while countries like Greece, Portugal and Ireland lag as their governments pursue painful austerity programs to get their public finances into shape.
Separate figures from Eurostat, the EU's statistics office, also showed that the industrial sector continues to go from strength to strength, with new orders in November up a monthly 2.1 percent.
The figures did little to jolt investors into buying stocks, however.
Britain's FTSE 100 index was up 0.2 percent at 5,906, while Germany's DAX fell 0.4 percent to 7,032. The CAC-40 in France was down 0.1 percent at 4,012.
Wall Street was also poised for a subdued opening, with Dow futures down 3 points at 11,819 and the broader Standard & Poor's 500 futures up less than a point at 1,280.
Much of this week's action in the stock markets could well hinge on the next round of U.S. corporate earnings statements, from the likes of McDonald's, American Express and Texas Instruments.
Earlier in Asia, Japan's benchmark index snapped a two-day losing streak as investors hunted for bargains. The Nikkei 225 closed up 0.7 percent to 10,345.11.
Australia's S&P/ASX 200 rose 0.6 percent to 4,786 and South Korea's Kospi added 0.6 percent to 2,082.16.
But elsewhere, markets were lagging. Hong Kong's Hang Sang dropped 0.3 percent to 23,801.78. Banking shares were among the decliners, including Bank of China, which dropped 1.4 percent, and HSBC, down 0.4 percent.
The Shanghai Composite index fell 0.7 percent to 2,695.72 and the Shenzhen Composite Index for China's smaller, second market shed 2.4 percent to 1,150.04.
Markets in Taiwan, Indonesia, Thailand and New Zealand also fell.
Benchmark crude for March delivery was down 49 cents at $88.62 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 48 cents to settle at $89.11 on Friday.
Pamela Sampson in Bangkok contributed to this report.