LONDON (Reuters) - World shares rose and the euro hovered near a two-week low on Friday, on course for its biggest weekly loss in seven months after the European Central Bank rekindled speculation about another cut in interest rates.
Strong Chinese trade data help lift optimism about global growth prospects, boosting oil, copper and shares, although U.S. stocks were poised for a mixed start with the key S&P 500 index expected to record its first weekly drop of the year. <.n>.
The ECB left rates at a record low 0.75 percent on Thursday but the bank's President Mario Draghi levered the door to a cut back open by indicating it would monitor whether the euro's rise over recent months could push inflation below its comfort zone.
European shares were enjoying their best day of the month on the better Chinese data and hopes lower rates -- or at least the threat of them -- would reverse some of the 8 percent rise in the trade-weighted value of the euro since August.
"The ECB had quite an impact on the euro-dollar and the positive Chinese data we have had has helped shares," said ABN Amro economist Aline Schuiling.
"Draghi signaled quite clearly yesterday that with the rise in the euro, the risks to price stability are to the downside. We expect the dollar to continue to strengthen, but if that reverses then markets would price in a rate cut."
London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> were up 0.4, 0.45 and 0.2 percent respectively by 1230 GMT pushing the pan-European FTSEurofirst 300 <.fteu3> up 0.6 percent, though it was still on course for its second consecutive weekly fall.
Draghi said the euro's recent surge was a sign of a return of confidence, but cautioned: "We certainly want to see whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned."
The common currency was little changed at around $1.3440, after having fallen 0.9 percent on Thursday in response to Draghi's comments to briefly touch $1.33705, the lowest level since January 25.
The yen was the other key focus of foreign exchange markets following the push by Japan's government to ease monetary policy, and it rose sharply after the country's finance minister said the currency's recent drop had been overdone.
The euro fell as much as 1.5 percent against the yen to 123.54 yen while the dollar shed more than 1 percent to hit a session low of 92.17 yen before both currencies staged modest recoveries.
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Helping to bolster strengthening global growth hopes, China said its exports grew 25 percent in January from a year ago, the strongest showing since April 2011 and well ahead of market expectations, while imports also beat forecasts, surging 28.8 percent on the year.
The prospect for stronger Chinese demand lifted all industrial commodities, including copper which snapped a three-day losing streak to gain 0.4 percent to $8,229 a metric ton (1.1023 tons).
Brent crude oil edged towards a nine-month high above $118 a barrel on the robust trade data, which augurs well for fuel demand, while supply worries stemming from tensions in the Middle East have also supported prices.
Earlier MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> added 0.3 percent and Australian shares rallied 0.7 percent to 34-month highs on the data.
China's markets are closed next week for the Lunar New Year holiday, while Hong Kong will resume trading on Thursday. Despite Friday's gains, MSCI's world equity index <.miwd00000pus> was on course for a weekly fall of nearly one percent, which would be its biggest drop since November and the first weekly decline of 2013.
However, the global index is still up four percent for the year to date and not far from its best levels since mid-2008.
Money markets rates reversed some of their recent gains following Draghi's insistence that the ECB's policy will remain accommodative.
The central bank also said on Friday that banks will return another 5 billion euros of its crisis loans next week, suggesting the initial flood of repayments has turned into a steady trickle.
In the bond market, benchmark German Bund futures continued to push higher as Draghi's cautious tone on the euro zone's economy underpinned demand for low risk assets.
Nagging concerns about political stability in Spain and Italy were piling pressure on higher-yielding peripheral bonds to the benefit of Bunds, overshadowing an Irish bank debt deal that will cut Dublin's borrowing costs over the next decade.
"On the 10-year Spanish bonds, we could go significantly above 5.5 percent and reach the 5.6 area and it can be quite fast," BNP Paribas strategist Patrick Jacq said.
But "On a longer-term view we still expect market friendly outcomes of the political issues, and the setbacks offer some opportunities to enter long positions."
Spanish 10-year yields were last at 5.42 percent while equivalent Italian yields were about 1 basis point up at 4.58 percent.
(Additional reporting by Richard Hubbard and Emelia Sithole-Matarise; editing by Philippa Fletcher)
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