European markets remained downbeat Thursday after a decent Spanish bond auction failed to turn sentiment following grim euro-zone business activity data and continuing concerns over Cyprus.
Spain sold �4.513 billion ($5.84 billion) in government bonds, above the �3 billion to �4 billion targeted range.
Good demand and lower funding costs at the auction seemed to reflect investors' confidence that the Cypriot crisis would remain contained and contagion risks were limited. "Market dealers probably hope that the Cyprus bailout will be sorted out soon, given that even the European Central Bank has warned the country that the emergency liquidity assistance (ELA) funding would be suspended early next week, should an agreement fail to be reached." said Annalisa Piazza, an economist at Newedge Strategy.
However, other European financial markets were less upbeat. Spain's main equity index, the IBEX 35, reacted by slipping slightly, the benchmark Stoxx 600 index maintained losses while the euro failed to get a boost.
Sterling gained ground and reached a fresh two-week high against the dollar after U.K. February retail sales more than made up for a slump seen in January, while public finances unexpectedly improved.
But overall markets are likely to remain on the back foot until a solution is found for Cyprus.
The Cyprus parliament Tuesday rejected a bailout deal with the euro zone that included a controversial levy on individual depositors' savings. The ECB said it would suspend aid to Cyprus's banks if the country can't reach a bailout deal by next week.
In addition, euro-zone economic data left little to be desired. The composite purchasing managers' index for the euro zone fell to a four-month low in March of 46.5 from 47.9 in February. Regional data for two of the euro zone's largest economies�Germany and France�disappointed, coming in below expectations.
"The fall in the composite euro-zone PMI in March suggests that even before the recent uncertainty surrounding Cyprus's future, the euro-zone economy had begun to contract more sharply," Capital Economics said in a note.
Coming up is plenty of data from the U.S., including initial jobless claims and existing home sales for February. The data will likely provide direction for markets. U.S. stock futures were moving up and down in a very tight rangeahead of the open.
Write to Paul Shannon at paul.shannon@dowjones.com
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