Positive economic data outweighs negative sentiment following slump in Chinese equities

On Thursday European stocks erased early losses as positive economic data in the region outweighed negative sentiment following a slump in Chinese equities. The dollar’s retreat slowed after the currency tumbled on Wednesday in the wake of more dovish than expected Federal Reserve minutes.

In a trading day likely to be thin on volumes because of the U.S. Thanksgiving holiday, the Stoxx Europe 600 edged higher after data showed the euroarea economy picked up momentum in November. The euro headed for a five-week high, helped along by news that Germany’s Social Democrat party was said to be open to talks with Chancellor Angela Merkel. Most bonds in the region edged lower as traders awaited notes from the European Central Bank’s last meeting. Sterling was set for its first drop in eight days after a volatile session yesterday following the U.K. budget. Earlier in Asia, Chinese stocks fell sharply after a recent surge that prompted government warnings about runaway prices.

Analysts said investors are concerned about a slump in China’s bond market spilling into equities as authorities step up a campaign to reduce leverage.

German politics remains in the spotlight, with Social Democrat leader Martin Schulz ready to start talks with Merkel and prepared to offer her limited support for a fourth term, according to two people familiar with his plan. In the U.S., while the central bank’s meeting minutes showed many policy makers still saw a “near term” rate hike as warranted, several were concerned about soft inflation.

The Stoxx Europe 600 Index climbed 0.1 percent as of 11:16 a.m. London time. The U.K.’s FTSE 100 Index declined less than 0.05 percent. Germany’s DAX Index increased 0.2 percent.

Elsewhere, oil stayed near a two-year high even as it pared yesterday’s gains. U.S. crude inventories dropped, adding to optimism OPEC’s output curbs are working.