European shares increase in early deals

European shares edged higher in the opening minutes of trade ahead of the release of eurozone manufacturing output data.

The pan-European FTSEurofirst 300 index rose 0.02 percent to 1,155.18 points in early trade. The UK's FTSE 100 was little changed in early deals and France's CAC-40 was up 0.2 percent.

Spain's IBEX and Italy's main FTSE MIB gained 0.2 percent each, while Germany's DAX was up 0.04 percent.

Analysts expect the flash manufacturing purchasing manager's index (PMI) readings from France, Germany and the eurozone to go below the 50 level, indicating contraction in the manufacturing sector in April.

At the same time, a weakness in the sector could prompt the European Central Bank (ECB) to cut rates to stimulate the economy when it meets next week.

"The manufacturing index may have nudged down again as past rises in the euro dampen demand for euro-zone exports and worries about Cyprus hit sentiment and investment. And with unemployment still rising and service sector firms' expectations weakening, we see the services index edging down too," said James Howat, economist at Capital Economics.

On Monday, data showed that the eurozone budget deficit shrank in 2012, but most economies' deficits have fallen less than expected.

Other major economic reports due for release include the Office for Budget Responsibility's public borrowing estimates, the Confederation of British Industry industrial trends survey and new home sales and house price data in the US.

Earlier, most Asian markets declined amid weak China manufacturing output data, adding to concerns that the world's second-largest economy has lost its growth momentum.

The Nikkei had closed at 13,529.7, down 0.3 percent. Australia's S&P/ASX 200 rose 0.9 percent at 5,012.3, while South Korea's KOSPI closed at 1,918.6, down 0.4 percent.

Hong Kong's Hang Seng declined 1.1 percent to 21,816.5 towards close. In China, the Shanghai Composite index fell 2.2 percent to 2,192.7.

The PMI compiled by HSBC Holdings and Markit Economics showed a preliminary reading of 50.5, compared with a final reading of 51.6 in March. A reading above 50 indicates an expansion in manufacturing activity.

The preliminary reading also fell short of economists' estimates of 51.5, according to Bloomberg.

Being China's first economic indicator for the second quarter, the HSBC report increased investors' concerns about the global growth prospects.

The decline in the markets came despite signs of recovery in the US economy as well as the possibility of further stimulus from the Bank of Japan.

Overnight, the US has reported weaker-than-expected existing home sales data, pulling down the dollar at around 99.02 yen. The yen failed to reach the key 100 yen mark on Monday despite coming close to rise as high as 99.90. The upcoming BoJ meeting on Friday is likely to provide another opportunity to clear that symbolic level.

Australian stocks climbed amid some upbeat earnings reports and positive cues from Wall Street.

Commodities markets continued to decline with copper, crude oil and gold sliding into the red. The demand for copper is slowing down, putting pressure on metal, while gold reversed earlier gains with a 0.14 percent decline. Brent crude fell from the $100 trading at $99.77.