London - Emerging market currencies and shares fell on Thursday and the dollar rose as a spike in US debt yields drove up borrowing costs globally, overwhelming the impact of buoyant economic reports from and .
However, with capital on the move back into developed markets, European shares and the euro bounced higher when the new business surveys confirmed expectations of strengthening recovery, lifting demand for banks and other financial stocks.
Driving the flight of funds were the minutes from the last US Federal Reserve policy meeting, which left unchanged market expectations that the central bank would being to taper its asset-buying programme as early as next month.
"It looks as if the minutes have done little to push back on market expectations for a Fed tapering," said , head of European foreign exchange strategy at Morgan Stanley.
That sentiment sent the 10-year Treasury note yield to a two-year high of 2.905% on Thursday, and lifted the dollar against an index of the world's major currencies by 0.25%.
Emerging markets, which rely heavily on cheap dollars to fund large current account deficits, were hit hard by the rise in Treasury yields. The currencies of and hit new record lows and their stock markets and bond prices also fell.
The currencies of , and all hit multi-year lows as well, while share markets across outside dropped 1.1% to a six-week low.
But as data from showed 's largest economy expanding at its fastest pace since January, coming after a similar Chinese survey signalled expansion in world's Number two economy, the euro rose and European shares gained.
The Markit preliminary composite Purchasing Managers' Index (PMI), which measures growth in both the manufacturing and services sector and covers more than two-thirds of the German economy, rose to 53.4 in August from 52.1 in July.
"It's an increasingly buoyant-looking picture, with manufacturing seeing its best performance for a couple of years, and alongside that there's an improving service sector, so exporters are doing well and the domestic economy is healing," said , chief economist survey compiler Markit.
The euro hit $1.3360 after the PMI was released, while 's broad index jumped 0.7%, snapping three days of losses.
's benchmark DAX index traded up 0.9%, while 's FTSE was up nearly 1%.
The gains in offset losses elsewhere to leave MSCI's world equity index, which tracks shares in 45 countries worldwide, virtually flat but near six-week lows.
The data, especially the upbeat Chinese numbers, helped industrial commodities to rally, with copper up 2.0% at $7 385 a tonne. Gold, bothered more by the risk of Fed tapering and rising bond yields, backtracked to be little changed at $1 370 an ounce.
HSBC said its preliminary purchasing managers' index for rose to 50.1 in August, a five-month high and just above the 50 level that separates growth from contraction.
Brent crude held above $110 a barrel on hopes for better demand from the Chinese survey, though signs that OPEC producer may resume exports dragged on price. US crude oil futures were up 81 cents to $104.66 a barrel.