By John Geddie
LONDON date (Reuters) - European stocks and low-rated government bonds opened higher on Thursday after a report showed China's factory sector turning in its best performance in five months and the US Federal Reserve reiterated it would support of the world's largest economy.
The euro zone flash PMI report is expected to confirm the bloc's sluggish recovery, a Reuters poll showed. It is forecast to just about maintain the pace of last month's readings, which were the highest in three years.
Early readings from Germany, the bloc's industrial heartland, set a positive tone. France remained a laggard.
"We are expecting the PMIs to confirm that the recovery is still underway and possibly point to that momentum picking up a little bit over the second quarter," said Timo del Carpio, European economist at RBC.
Riskier assets were in vogue after manufacturing data showed some signs of stabilising in China. Meanwhile, minutes from the US Federal Reserve's last meeting showed it was in no rush to raise interest rates.
European stocks opened 0.2 percent higher, with the main bourses in London, Frankfurt and Paris rising 0.2, 0.3 and 0.1 percent, respectively.
Government bond yields in the euro zone's fragile periphery also dipped. Spanish and Italian 10-year yields were both 1 basis point lower at 3.00 and 3.20 percent, respectively. Safe-haven German Bunds were unchanged.
Any major setback to Europe's economic recovery could prompt radical action from the European Central Bank. The bank has already strongly hinted it will cut rates at its June policy meeting. As well as nurturing growth, the bank wants to stave off deflation and cool a stubbornly strong euro.
Targeted measures aimed at boosting lending to small- and mid-sized firms programme or even a programme of asset purchases, so-called quantitative easing, have been mooted.
The euro was back under $1.37 on Thursday, towards the lower end of a very tight range it has held in all week.
LOSING APPEAL
In other major currency markets, the yen eased versus the dollar on Thursday and edged away from a 3 1/2-month high.
The yen has risen in recent weeks, partly because speculation has receded that the Bank of Japan will ramp up monetary stimulus.
One focal point for the yen is whether Japanese investors will step up their investment in higher-yielding overseas assets, at a time when domestic bond yields have been held low by the BOJ's massive monetary stimulus.
In a sign of such yield-seeking behaviour by Japanese investors, Japan Post Insurance is investing more in Japanese stocks and foreign bonds, according to disclosures and a person with knowledge of the investment strategy.
(Editing by Larry King)