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Late Wall Street rally shores up markets

LONDON Markets remained volatile Tuesday as investors focused on U.S. economic indicators and whether they make the Federal Reserve more or less likely to change the terms of its monetary stimulus.

For the past few weeks, market sentiment has been largely dependent on the vagaries of the U.S. economic data -- figures indicating that the U.S. economy is growing strongly has been met with concern among stock investors in particular, while any weakness has spurred buying.

On Monday, a disappointing manufacturing survey from the Institute for Supply Management was cheered as investors concluded that it was now less likely that the Fed would reduce the amount of financial assets it buys as part of a strategy to shore up the U.S. economic recovery. The stimulus has been one of the main reasons why many stock indexes have hit record highs, so investors have been viewing a possible withdrawal with concern.

Wall Street enjoyed a strong rally at the close on Monday and that positive sentiment continued, albeit at a less marked pace, into European and Asian trading. Japanese shares, in particular, recovered some ground.

"A strong close in the U.S. trading session and the mild rebound in Japan's benchmark overnight have seen investors dip a cautious toe into European risk assets this morning," said Brenda Kelly, senior market strategist at IG.

In Europe, the FTSE 100 index of leading British shares was up 0.5 percent at 6,555 while Germany's DAX rose 0.3 percent to 8,312. The CAC-40 in France was 0.3 percent higher at 3,933.

Wall Street was poised for a flat opening following Monday's late advance, with both Dow futures and the broader S&P 500 futures down 0.1 percent.

Though Monday's ISM survey, which indicated that the manufacturing sector was contracting again, reined in expectations of a Fed policy change, there's a lot of economic data this week that could alter predictions again.

Tuesday is probably the lightest data day of the week, but the pace picks up on Wednesday with the ADP private payrolls report for May and the ISM's survey of activity in the services sector. Most important will be Friday's nonfarm payrolls report for May. The payrolls figures are usually the U.S. economic release with the greatest market impact.

"Markets seem to be dominated by flow and positioning ahead of the next batch of event risk tomorrow," said Adam Cole, an analyst at RBC Capital Markets.

It's also a big week in Europe, with the European Central Bank meeting to discuss the ailing eurozone economy and whether anything more needs to be done to get it growing again. The latest speculation in the markets is that the ECB will refrain from announcing any big new measures Thursday.

Ahead of the raft of economic news about to emerge, most currencies were stable. The euro was unchanged at $1.3075, while the dollar recouped some of the previous days' retreat against the yen, trading 0.5 percent higher at 100.52 yen.

The Australian dollar was in focus after the country's central bank opted against cutting interest rates again but hinted at further easing and voiced concern over the currency's strength. The Aussie dollar was down 1.1 percent at $0.9652, helping the country's main stock index post a modest 0.3 percent advance.

Elsewhere in Asia, Japan's Nikkei 225 index clawed back some of its prior session losses with a 2.1 percent gain to close at 13,533.76. Mainland Chinese shares fell for a fourth straight day, with the Shanghai Composite Index falling 1.2 percent to 2,272.42, its biggest loss in more than a month. Hong Kong's Hang Seng was nearly unchanged at 22,285.52.

Oil prices drifted lower, with the benchmark New York rate down 54 cents at $92.91 a barrel.

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