Europe's STOXX edges up 0.3%, buoyed by Japan
Investors awaiting key U.S. data this week
Sentiment remains fragile, yen still in focus
(Updates prices at 0800 GMT)
A rally in Japanese shares led stocks higher on Tuesday ahead of a slew of data this week, including U.S. inflation numbers, which could clarify the Federal Reserve's policy outlook after volatile markets last week.
Oil prices eased after a 3% jump on Monday as investors kept a wary eye on the risk of a widening conflict in the Middle East that could pinch global crude supplies.
Europe's STOXX 600 index .STOXX rose 0.3% as investors held back from making big bets ahead of U.S. producer prices later in the day.
Japan's Nikkei .N225 jumped more than 3% following a holiday on Monday, a welcome relief after last week's wild swings that began with a massive sell-off spurred by a rising yen and fears of a U.S. recession.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.15% to 556.55. Chinese stocks edged down while Hong Kong's Hang Seng Index .HSI ticked up 0.1%.
U.S. markets looked set to follow the cautiously optimistic tone, with S&P futures up 0.47% .EScv1 and Nasdaq futures up 0.72% .NQc1 .
"While aftershocks might reveal vulnerabilities, we continue to view recent volatility as being an equivalent of a 'heart palpitation' not a 'cardiac arrest'," Viktor Shvets, head of global desk strategy at Macquarie Capital said in a note.
"We also maintain that the nervousness about a U.S .slowdown is overdone."
The yen JPY=EBS dropped 0.42% to 147.855 per dollar on Tuesday, having touched a seven-month high of 141.675 on Monday last week, a far cry from the 38-year lows of 161.96 it was rooted to at the start of July.
A Bank of Japan rate rise last month following bouts of intervention from Tokyo earlier in July wrong-footed investors and led them to bail out of popular carry trades, which use the currency of a low-rate market to fund investments with higher returns.
The latest weekly data to Aug. 6 showed that leveraged funds - typically hedge funds and various types of money managers - closed their positions in the yen at the quickest rate since March 2011.
Given the yen's recent rally, dollar-yen is now more in sync with its yield differential, according to Karsten Junius, chief economist at Bank J. Safra Sarasin.
"Another wave of the yen-funded carry trade unwind will likely push the yen still somewhat higher towards year-end. Yet we do not expect USD-JPY to fall meaningfully below 140," he said.
DATA HEAVY WEEK Data this week could sharpen views on the Federal Reserve's next move. Markets are currently evenly split between a 25 basis-point cut or a 50-bp cut at the next meeting in September.
Traders are pricing in 100 bps of cuts this year. FEDWATCH Surprisingly soft payrolls data kicked off the market meltdown at the start of last week but strong U.S. data since then has eased slowdown fears.
U.S. producer price data for July is due later on Tuesday. Any hints of soft inflationary pressures could cause financial markets to double down on wagers the Fed will sharply cut rates this year, which would weigh on the dollar, said Kristina Clifton, a senior economist at Commonwealth Bank of Australia.
On Wednesday, U.S. consumer price index data for July is due and is expected to show that month-on-month inflation ticked up to 0.2%. Retail sales data is scheduled for Thursday.
The dollar index =USD , which measures the U.S. currency against six rivals, was 0.08% higher at 103.17. The euro EUR=EBS was steady at $1.0940, while sterling GBP=D3 was up 0.1% at $1.2778.
In commodities, Brent LCOc1 crude futures eased 0.5% to $81.88 a barrel, while U.S. West Texas Intermediate crude futures CLc1 slipped to $79.59 a barrel, down 0.46%. Brent had gained more than 3% on Monday, while U.S. crude futures had risen more than 4%.
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