By Marc Jones
LONDON (Reuters) - European shares lost momentum on Wednesday and the euro slipped from a seven-week high as a disappointing Spanish bond sale and mixed data took the gloss off comments by China's new leader that had boosted hopes for global economic growth.
The FTSEurofirst 300 index, which has risen more than 5 percent in the last two weeks, was up 0.1 percent by 1145 GMT but beginning to flag, having earlier come close to a 16-month high of 1,128.65.
The MSCI index of world stocks was up just under 0.2 percent after Asian equities had hit their 16-month high on remarks from Communist Party chief Xi Jinping that the Chinese government would maintain its fine-tuning of economic policies in 2013 to ensure stable growth.
This boosted mining stocks and helped to distract investors from worrying about U.S. Congressional talks on averting the "fiscal cliff", tax rises and spending cuts which are due to start in January unless political leaders agree an alternative.
"There was positive news out of China... The miners are rallying following stronger commodities and at least for now we head higher and can put the 'fiscal cliff' on the back burner for the time being," said Jawaid Asfar, a trader at SecurEquity.
However, Spain fell slightly short of the 4.5 billion euros of debt it had hoped to sell on Wednesday. This dampened the mood while euro zone purchasing managers index data showed the bloc's economic weakness was a little less pronounced in November than previously thought, although it still looks on course for another quarter of recession.
The euro had surged to a seven-week high against the dollar and a 2-1/2 month high versus the Swiss franc in early trading, but went into reverse, falling to $1.3086 as markets digested the data and a disappointing Spanish bond sale.
Bond markets also reacted poorly to the auction, with Spanish 10-year yields rising 12 basis points to 5.39 percent and German debt futures hitting a session high.
Euro zone experts still expect Madrid to request a sovereign bailout which would pave the way for the European Central Bank to buy its debt, but doubts have started to creep in following a drop in tensions and yields in recent weeks.
"Spanish yields are trading at quite tight levels so investors may be starting to get scared about whether the current level can be sustained in the near term," said Alessandro Giansanti, a rate strategist at ING in Amsterdam.
"This level of yields is implying that the Spanish government will ask for support in the next few months and if it doesn't happen it's quite likely that yields will start to move higher.
CHINA HOPES/UK PAIN
The dollar steadied, having earlier come under pressure from expectations of new bond buying by the Federal Reserve while U.S. stock futures pointed to a 0.2 rise on Wall Street when trading resumes.
U.S. factory and employment data will be scrutinised for the impact of superstorm Sandy which shut down parts of the country's east coast last month. The fiscal cliff talks will also be in focus after President Barack Obama stuck to his case on Tuesday for raising taxes for wealthier Americans.
Commodity markets opted to focus largely on the comments from the Chinese leader which fed hopes that growth in top energy consumer China will pick up sooner than expected.
Oil prices moved back above $110 a barrel after two sessions of losses and growth-attuned copper hit its highest level in nearly seven weeks. Gold also climbed over $4 to $1,700 an ounce as it moved away from a month low.
"Risk appetite is back," said one Singapore-based metals trader. "The general sentiment is that the U.S. fiscal problems will probably just be kicked down the road, and we may even see a short-term rally."
Wednesday's other main event in Europe comes in the UK when British finance minister George Osborne presents a half-yearly budget statement at around 1230 GMT.
More austerity looks certain due to a darker economic outlook even if he tries ease the pain by juggling the spending and sweeten the pill with new investment plans.
Bracing for the pain, sterling hit a one-month low against the euro of 81.45 pence. Compounded matters, PMI data showed Britain's dominant service sector grew last month at its slowest pace in nearly two years, confounding expectations for a pick up.
(Additional reporting by David Brett and William James; Editing by David Stamp)
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