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LONDON. – European stock markets stuttered and the euro clawed back some ground against the US dollar yesterday as investors had second thoughts about sky-high expectations of European Central Bank easing this week.

Britain’s FTSE 100 was one of only a couple of the region’s bourses to show gains after the release of promising bank stress tests, with record low unemployment data from Germany feeding fears that ECB stimulus hopes could be overdone.

US stocks were set to open up 0,3 percent, building on Asian gains after tentative signs that a slowdown in China was stabilising. Europe’s bond yields ticked higher and the single currency bounced off a 7-1/2-month low on concerns that the ECB may not deliver all the stimulus tomorrow that investors have come to expect.

Markets are already pricing in a deposit rate cut and an increase in the size, scope and length of the ECB’s trillion-euro bond buying programme. Analysts say it would be hard for ECB President Mario Draghi to surprise markets.

“The big question is if Draghi can surprise the markets, given that ECB by its own comments has contributed to quite stretched market expectations,” SEB head of fixed income research, Jussi Hiljanen, said.

The FTSEuro was up slightly on the day, with the rally in the FTSE offsetting falls in Germany’s DAX. European stocks failed to gain much sustained impetus from Chinese data which sent MSCI’s broadest index of Asia-Pacific shares outside Japan up 1,8 percent.

China’s official Purchasing Managers’ Index reached a three-year low in November. But the private Caixin/Markit China Manufacturing PMI showed factory activity contracted at a slower pace than in October, fuelling hopes the economy may have been bolstered by government support.

In Europe’s largest economy, Germany, there were further signs of a turnaround in fortunes, with unemployment dropping to the lowest level since reunification in 1990.

CMC Markets’ Michael Hewson said that these sorts of signs of life in the euro zone economy could limit the aggressiveness of ECB stimulus.

“Quite simply there is a risk that market expectations of what the ECB will do this week are based on the premise of shock and awe, when in reality they could get something more akin to bubble and squeak,” he said in a note to clients.

This was certainly the feeling among bond and currency investors, with German yields up for the second straight day, coming off a one-month low hit on Friday, and the euro rising to $1,0593, after dropping to a 7 1/2-month low of $1,0557 on Monday. – Reuters.