Australian shares eked out modest gains after upbeat Chinese data helped calm renewed worries about Europe's debt crisis.
The benchmark S&P/ASX200 index added just 4.3 points, or 0.1 per cent, to 4133.2, while the broader All Ordinaries index rose 2 points to 4161.2. Both indexes lost about 1.7 per cent yesterday as concerns about Greece and Spain's debt woes pummelled sentiment.
Resource stocks clawed back some of yesterday's steep falls, with energy stocks up 0.8 per cent and materials rose 0.7 per cent. Financial stocks edged 0.1 per cent lower.
China's manufacturing output in July grew at its fastest pace in nine months, helping lift an index of activity in the country's overall factory sector to its highest level since February, a survey out today showed.
The HSBC Flash China manufacturing purchasing managers index (PMI) rose to 49.5 in July from 48.2 in June. The increase was driven by a jump in the output sub-index to 51.2 - the best showing since October 2011.
The flash PMI is the first significant Chinese data point in the third quarter of the year and signals that a sequential improvement in the economy in the second quarter may be broadening as pro-growth government policies gain traction.
Europe turns lower
European shares reversed course and fell on Tuesday after weak German factory data overshadowed signs of an improvement in China and sent the euro sliding towards two-year lows.
Germany's manufacturing sector contracted at its fastest pace in three years in July, suggesting Europe's largest economy may shrink in the third quarter as the country feels the effects of the region's debt crisis.
The Markit PMI index tracking the manufacturing sector slid to 43.3 from 45.0 last month, below the consensus forecast in a Reuters poll of 45.3 and well under the 50 mark that separates growth from contraction..
"The German manufacturing sector has been one of the key elements of the euro zone recovery and to see it contracting at this rate is really quite worrying," said Chris Williamson, chief economist at the data compiler Markit.
The FTSEurofirst 300 index of top European shares reversed early gains to be down 0.2 per cent at 1,022.26 points, after it fell 2.4 per cent to a three-week low in the previous session.
Europe woes linger
Lonsec analyst Michael Heffernan said resources stocks pulled the local indices out of the red on after the Chinese data - but the doubts surrounding Europe's ability to handle its sovereign debt crisis have gone away.
‘‘People are keeping their hands in their pockets and we’re still subject to information out of Europe.’’
While 14 of the top 20 Australian companies were in positive territory, anaemic turnover continued to be a feature of the local market as high-yielding stocks remained in favour.
BHP Billiton gained 38 cents to $30.93, while Rio Tinto was 24 cents lower at $51.76.
Fortescue Metals Group suffered steep falls in morning trade to hit a two-year low before regaining ground to close one cent lower at $4.04.
Iron-ore drag
Support for the big miners, though, may not last as spot prices for iron ore delivered to China fell to an eight-month low on Tuesday. They are likely to fall further as there are few signs that demand for steel is likely to pick up soon, traders said.
Chinese buyers remain bearish about the prospects for the steel-making raw material, saying there are few signs that steel demand will recover - even in light of the PMI figures.
Benchmark iron ore with 62 per cent iron content dropped 1.1 per cent to $US123.60 per tonne on Monday, its lowest since November 4, according to data from the Steel Index
Mirabela, Billabong
Beleaguered Brazil-focused miner Mirabela Nickel gained 1 cent to 25 cents after announcing it remains on track to deliver on its production forecast but will shed several hundred jobs.
Meanwhile, Oil Search says it is close to deciding on partners for its natural gas exploration assets in resource-rich Papua New Guinea, and was 2 cents higher at $6.60.
In the retail sector, shares in troubled surfwear brand Billabong surged 19.5 per cent to $1.31 after it received a second - but substantially lower - takeover offer from US private equity firm TPG valuing the firm at $695 million.
Shares in garage doors, windows and building products maker Alesco were down 2 cents to $2.01 as it announced a $13.9 million loss for its 2012 financial year.
The company is subject to a $210 million takeover bid from paintmaker DuluxGroup, which finished 3 cents weaker at $2.97.
National turnover was 1.59 billion securities worth $3.19 billion, with 342 stocks up, 557 down and 370 unchanged.
BusinessDay with AAP, Reuters