By Blaise Robinson and Lionel Laurent
PARIS (Reuters) - Stocks and safe-haven government bonds in Europe edged higher on Wednesday, with the prospect of more monetary stimulus from the European Central Bank offsetting a drop in German business sentiment.
A recovery in Russian and Chinese shares also helped emerging markets halt a near-unbroken three-week run of falls.
Investors, however, have been rattled by this week's worse-than-expected economic data from euro zone countries, leaving Europe's equity markets pretty much where they began this month.
There was more bad news on Wednesday, with German business sentiment dropping for a fifth straight month in September to its lowest level since April 2013 and the Bank of Spain warning that Spanish private consumption growth and new job creation were likely to have slowed in the third quarter.
But a renewed pledge from ECB President Mario Draghi to keep monetary policy accommodative - for as long as it takes to push ultra-low inflation in the euro zone back up closer to 2 percent - gave support to financial markets and dulled the sting of economic weakness without entirely neutralizing it.
Analysts reiterated that the recent soft patch of economic indicators, coupled with a weak take-up of the ECB's new set of emergency loans last week, has increased chances that the central bank will turn to other measures to spur growth.
"It provides a further signal of broad-based weakness in economic activity and raises pressure on policymakers to address this," said Lyn Graham-Taylor, a strategist at Rabobank.
The pan-European FTSEurofirst 300 index (FTEU3) was up 0.2 percent at 1,378.09 points at 6.47 a.m. EDT, breaking a two-day losing run but little changed since the start of September.
German bond yields
"Draghi just reaffirmed what he has said recently. It's positive, but won't be enough to really prevent stocks from drifting lower," Saxo Bank trader Andrea Tueni said.
EMERGING REBOUND
The pick-up in Russian and Chinese shares boosted emerging markets while the U.S.-led air strikes in the Middle East pushed investors toward safe-haven government debt, cooling the recent pressure on emerging markets from rising global bond yields.
The MSCI emerging stocks index (MSCIEF) edged up 0.3 percent as it attempted to make only its second daily gain in 15 sessions, while easing tensions with Ukraine helped Russian dollar bonds to their firmest level in over a month.
Shanghai shares (SSEC) also finished at their highest in more than 1-1/2 years, helped by brokerage firms which rose amid optimism over policy reforms. The main Chinese index climbed 1.5 percent for its best close since March 6, 2013.
Emerging European gains were led by Russia. Stocks there jumped 1.7 percent to extend Monday's rally following reports the European Union might review its Ukraine-related sanctions on Moscow, and hopes China's economy is strong enough to fuel demand for Russia's raw materials.
EU ambassadors meet in Brussels later on Wednesday, while the ceasefire between Kiev and pro-Moscow rebels in eastern Ukraine appears to be holding.
OIL SLIPS
Brent crude fell for a third day on Wednesday, with futures for November delivery
London copper climbed away from three-month lows, although a looming oversupply of the metal kept its advance in check.
The dollar was kept in check on geopolitical concerns. The United States and its Arab allies bombed militant groups in Syria for the first time on Tuesday, opening a new front amid shifting Middle East alliances and sapping demand for riskier assets.
The yen rose after Japanese Prime Minister Shinzo Abe voiced concern about the economic impact of the currency's fall to a six-year low, adding to the sense of a pause this week in the dollar's rise.
"It seems to us - and I think most people - that it's not the fact of the move, just the pace of it that Tokyo is concerned about," said a spot dealer with one large international bank in London.
"(But) it is not a surprise that we're seeing the yen show some resistance at the moment, given the slight pullback we've seen on the dollar in the last few days."
(Additional reporting by John Geddie in London; Editing by Toby Chopra)