Global economic uptick boosts stocks, euro

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The global economy showed signs of improvement on Thursday with factory output improving in two of the world's largest economies.

Euro zone flash composite purchasing manager's index (PMI) rose to 51.7 in August, from 50.5 last month, beating estimates. It was the best reading since June 2011.

In China, HSBC's preliminary reading of PMI data crossed the key 50-level, which signals expansion, for the first time in four months.

The FTSEurofirst 300 Index and the euro rose against the dollar after the news and China's benchmark index outperformed other Asian stocks.

The boost to markets comes during a period of heightened tension over when the U.S. Federal Reserve could start tapering its $85 billion-a-month asset purchases program.

(Read more: Fed's hawkishmessage a lever for rates)

"[The China PMI] confirms that the economy has stabilized in the short term and downside risks for the second-half have declined. Based on this flash PMI, we now see upside risks to our GDP forecast [of 7.4 percent] for the third quarter," said Zhiwei Zhang, chief China economist at Nomura.

Richard Jerram, chief economist at the Bank of Singapore, told CNBC the numbers out of the euro zone showed that "the headwinds from fiscal tightening" were fading though he warned the region was not out of the woods yet.

(Read more: China a 'stallion' amid emerging market turmoil)

"Overall, the survey provides hope that the second quarter's rise in euro-zone GDP was not a one-off. But for now at least, growth remains a long way short of the rates required to start to address the region's debt crisis," Jonathan Loynes, chief economist at Capital Economics cautioned.

The PMI data from euro zone's largest economy Germany jumped to 53.4 in August from 52.1 in July, causing German stocks to extend gains and the euro to rise against the dollar. One letdown was France, where PMI data showed that economic activity fell to a two-month low in August.

Daniel Lacalle, senior portfolio manager at Ecofin said the German numbers were "absolutely fantastic."

"Some people were not thinking about the strength of the recovery of Germany after it went into surplus with the latest reforms. There was a lot of talk about Germany getting worse... there were concerns about exports...and it's proven to be completely wrong," he told CNBC Europe's "Squawk Box."

Also on Thursday, the OECD (Organisation for Economic Co-Operation and Development) reported the euro area economy grew by 0.3 percent in the second quarter, quarter-on-quarter, its first GDP expansion since the third quarter of 2011.

In Germany, GDP increased by 0.7 percent, compared with the flat growth rate registered in the previous quarter. In France, GDP grew by 0.5 percent, rebounding from a contraction of 0.2 percent in the previous quarter.

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