The euro hit its lowest in almost three years against the yen while European shares extended their strongest run of the year on Tuesday as data from around the region bolstered the case for more ECB stimulus next week.

Asia had risen after weak China data fanned stimulus hopes there, and the same pattern emerged in Europe as euro zone manufacturing activity expanded at its weakest pace for a year despite more deep discounting.

Markit’s Purchasing Managers’ Index (PMI) will make gloomy reading for the European Central Bank, a day after it was confirmed deflation is back in the bloc and a week before its next meeting where pressure for action is building.

Euro sinks as fragile info piles pressure on European Central Bank
The hopes for the central bank helped Germany’s DAX .GDAXI jump 1.8 percent and France’s CAC 40 .FCHI climb 0.9 percent, while Britain’s FTSE 100 .FTSE gained 0.7 percent as talk of a bid battle for the London Stock Exchange helped offset an 11 percent tumble in Barclays shares (BARC.L).

In the currency markets, the euro slipped to a one-month low after the PMI data while the yen was still hot to the touch having completed its best month against the dollar JPY= since 2008 and reached its highest against the euro EURJPY= since April 2013 overnight.

The gains came despite Japan earlier becoming the first G7 economy to sell a 10-year government bond at a negative yield, something that would usually make the currency less attractive as investors are effectively paying rather than getting paid to hold them.

“The yen strength right now is largely being dominated by (weak) risk appetite,” said UniCredit’s Global Head of FX Strategy Vasileios Gkionakis.

On the euro he added: “There is no doubt the low inflation and the soft economic data is keeping the pressure on the ECB to do something next week.”

There is a glimmer of expect the central bankers though as Brent essential oil rates LCOc1, the big downward pressure on inflation going back two years, since August struck their highest because the start of year after their finest month.

It helped German Bund yields nudge off 10-month lows following the previous day’s deeper than anticipated fall in euro area consumer rates had triggered fresh relationship buying as inflation anticipations EUIL5YF5Y=R strike their lowest on record.

The European Central Lender is likely to cut its deposit price by at least another 10 basis tips when it meets subsequent Thursday ECBWATCH and increase its 1.5 trillion euro bond buying scheme.

CAUTION FRAGILE CHINA

Futures markets were pointing to a 0.7 percent rebound for Wall Street when it resumes, having dropped below its 50-day moving average on Monday.

U.S. manufacturing and services sector data ECONG7 will feed the constantly evolving view <0#FF:> of whether the Federal Reserve can continue to squeeze up interest rates in the world’s largest economy this year.

The latest rise in oil helped Russian dollar-denominated shares .IRTS add 2 percent to their near 30 percent surge since mid-January.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS had ended up 1.3 percent too, as Chinese stocks, .CSI300 which are nudging their lowest in a year, climbed 1.8 percent after Monday’s PBOC cut in banks’ reserve requirements.

There was a widespread feeling more stimulus is likely too when Beijing announces a new 5-year plan for the economy at the weekend.

Official data on Tuesday showed activity in the country’s giant manufacturing sector shrank for a seventh straight month in February and faster than expected.

The services sector did expand, but at the slowest pace since late 2008 and the private Caixin/Markit China Manufacturing PMI came in short of both market expectations and the previous month’s reading.

“We think the PBOC easing is consistent with continued weaker-than-expected economic activity and downside risks to growth,” wrote Jian Chang, an analyst at Barclays. “It should help to support market sentiment in the near term.”

Japan’s Nikkei .N225 erased early losses to ended up 0.4 percent although the yen’s hot streak continued to drag back a market that has slumped 15 percent this year.

Against the euro, the perceived safe-haven yen gave back some territory as the PMI dust settled to leave it at 123.07 yen EURJPY=R. It had been as elevated as 122.09, the highest since April 2013.

The dollar was buying 113 yen JPY=, edging up about 0.4 percent, while the Australian dollar added 0.2 percent against its U.S. counterpart to $0.7152 AUD=D4 after the Reserve Bank of Australia left its rates at a record low 2 percent.

Gold also rose to $1,240 XAU= an ounce as it built on its biggest monthly gain in four years. Its appeal is being boosted by the concerns over the global economy and the spread of negative government bond yields in Europe and Japan.

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