The euro hit an 11-month high and shares rose on Friday as the outlook for the region's biggest economy brightened and the currency bloc's central bank prepared to reveal how much of its crisis loans banks are ready to repay.
In the latest sign the recession-hit euro region is turning a corner, Germany's Ifo think tank said its business climate index, based on a monthly survey of some 7,000 firms, rose in January to its highest level since June 2012.
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After the data the euro extended a rally that had earlier pushed it above $1.34 to the dollar to hit $1.3430, which it last touched in February 2012.
European shares erased early losses to be up 0.1 percent , while Germany's DAX index climbed about one percent to a level last seen five years ago before the financial crisis began.
"Germany is roaring back to growth in the new year," said Berenberg Bank Economist Christian Schulz.
The Ifo index followed another big business survey released on Thursday which suggested Europe's largest economy was set to grow its fastest pace in a year, although that data showed its regional partner, France, may be heading back into recession.
"The fact is that the situation in Europe has clearly stabilised, not least due to support from the European Central Bank," Thomas Gitzel, Senior Economist at VP Bank.
The ECB was set to reveal how much of the first of the long-term cheap loans to the banking system at the height of the euro zone debt crisis in December 2011 the banks were now in a position to repay.
The size of the repayment, due to be announced at 1100 GMT, is being viewed as gauge of the health of the banks, which were close to collapse before the ECB injected over one trillion euros of cheap funds into the banking system.
Estimates average around 100 billion euros according to a Reuters poll, although some analysts believe it could be as high as 300 billion as stronger banks try to show they are weaning themselves off of central bank life support.
"An initial repayment in excess of 100 billion euros would be a positive surprise for markets and likely supportive for risk assets," said Michael Symonds, a credit analyst at Daiwa Capital Markets.
UK TRIPLE DIP?
Outside the euro zone, the outlook for Britain remained bleak with the first reading of economic growth in the fourth quarter pointing to economy heading for its third recession in four years.
Britain's gross domestic product fell by a greater than expected 0.3 percent in the fourth quarter to leave the economy showing virtually no growth in 2012.
"The most accurate thing we can say is that taking this and other reports together, the data is consistent with ongoing stagnation in the UK economy," James Knightley, senior economist at ING.
Sterling fell to its lowest in 13-1/2 months against the euro at 85.29 pence and hit a five-month low against the dollar $1.5745 after the data, though Britain's FTSE 100 stock index barely reacted.
World shares were up about 2.2 percent overall and at 20-month highs as the latest German data added to upbeat manufacturing reports from the United States and China
which showed factory activity at best levels in two years.
However, the gains were tempered by Apple's disappointing quarterly results this week which have cast a pall over tech-heavy markets across Asia.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.5 percent on Friday, for a weekly drop of about 1 percent, its biggest loss in two months.
But the improved outlook for fuel demand implied by the stronger data kept Brent crude above $113, on track to post a second week of gains.
Copper also edged up near two-week highs on Friday on the robust economic data, although prices were set to close the week little changed.
Three-month copper on the London Metal Exchange CMCU3 rose by 0.3 percent to $8,121.50