london 08 03, 2012, 15:40 IST
European shares and the euro staged fragile recoveries and Spanish bond yields eased from their highs on Friday after big selloffs provoked by the European Central Bank's decision to delay action on tackling the region's debt crisis.
The ECB had disappointed hopes of immediate moves to ease Madrid's borrowing costs, indicating on Thursday it may resume buying Spanish debt but only under strict conditions that would delay any action until at least September.
"There might be a feeling that maybe the move yesterday on the ECB was overdone - I think we're getting a bit of a relief off that," David Jones, chief market strategist at IG Index said.
The market's focus was switching temporarily to the July U.S. non-farm payrolls data, due at 1230 GMT, which are expected to show job creation running at weak levels.
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U.S. non-farm payrolls are forecast to rise by 100,000 in July, after an 80,000 increase in June, with the unemployment rate seen static at 8.2 percent.
"If we get a good number, it shows the (U.S.) economy's maybe better than we thought. If we get a bad number, then people think it's going to force the Fed's hand to do more," IG Group's Jones added.
The euro stood at $1.2220, up around 0.3 percent, after it skidded nearly three cents from Thursday's high to $1.21335 after the ECB announcement.
"The euro is headed lower, there is no doubt about that. People are probably waiting for U.S. payrolls and an OK number could see euro fall towards $1.2040," said Geoff Kendrick, currency strategist at Nomura.
The FTSEurofirst 300 index of top European shares was up 1 percent at 1,065.50 points, on track for its ninth weekly gain in a row and extending its longest run of weekly rises since mid-2005.
The benchmark index was recovering from a drop of 1.2 percent on Thursday due to the ECB's decision, which followed a promise from President Mario Draghi last week to do whatever it takes to save the common currency, within the bank's mandate.
DEBT RELIEF
Despite the lack of any bold ECB move, a belief that help would still come encouraged some investors to buy shorter dated Spanish and Italian debt, bringing yields off their highs across the market.
Spanish 10-year yields were around 3.5 basis points higher on the day at a still crippling 7.26 percent, but down from early highs of around 7.4 percent.
Equivalent Italian yields were about 12 basis points lower on the day at 6.22 percent, having risen as high as 6.45 percent in early trade.
EURO ZONE JOBS GLOOM
A survey of euro zone business activity also out Friday underlined the case for more policy action, showing firms were cutting jobs in July at the fastest pace since January 2010, a seventh straight month of layoffs.
The Markit composite purchasing managers index (PMI) for July, which gauges the health of thousands of euro zone companies survey, improved marginally to 46.5 from 46.4 in June, but showed the euro zone's biggest economy is now struggling.
"The big worry is that the downturn in Germany may be becoming more entrenched, suggesting that the largest euro economies are seeing convergence in collective and mutually-reinforcing decline," said Chris Williamson, chief economist at survey compiler Markit.
There was some good news when an indicator compiled by the Economic Cycle Research Institute (ECRI) and designed to anticipate cyclical swings in the rate of inflation showed price pressures in the euro zone falling to a 27-month low in June.
"Euro zone inflation is likely to recede further in the months ahead," said Lakshman Achuthan at ECRI.