European stocks are set to end a tepid session with a cautious tone as investors look to political and economic developments in the United States and eye key December jobs data.

Most major European bourses were little changed from yesterday's close, which lifted benchmarks around the regions to multi-month highs. Britain's FTSE 100 gained little more than 0.11 percent in quiet trading, taking the January gain to 2.7 percent. The normally defensive equity market in Switzerland was the standout gainer, advancing 2.7 percent to take the 2013 advance to just under 3 percent.

Investors are now watching for progress from Washington on avoiding a full breach of the US's $16.4tn debt ceiling, which Treasury Secretary Tim Geithner said could come as early as 28 February. President Barack Obama signed a bill late last night that avoided triggering spending cuts and tax increases that could have turned the economy back into recession. However, the eleventh-hour deal gives lawmakers just two months to agree a budget compromise and avoid either a technical default on US Treasury bonds or a downgrade of its AAA debt rating by either Moody's Investors Service or Fitch Ratings.

US markets dipped in early trading on Wall Street following the strongest equity rally in more than a year that added 2.5 percent to the benchmark S&P 500 on Wednesday. The Dow Jones Industrial Average fell around 10 points, or 0.08 percent, to 13,402 in the opening minutes of trading while the Nasdaq gave back 3.6 points, or 0.12 percent, to trade at 3,108.6. The S&P 500 was little changed at 1,461.7.

The US Labor Department will publish its December Employment Report at 1330 London time Friday, with analysts expecting it to show a gain of around 150,000 new jobs in the final month of the year. The figures have taken on even greater significance in the market now that Federal Reserve Chairman Ben Bernanke has said he and his colleagues will use a fixed benchmark of 6.5 percent in unemployment as a gauge for the effectiveness of its various programmes of near-zero interest rates and monthly asset purchases. The November jobless rate was measured at 7.7 percent, the lowest since at least 2008.

A private report from data provider ADP published today showed US firms added 215,000 new workers to their payrolls last month, a much stronger figure than expected. However, the numbers were partially offset by a bigger-than-expected increase of 372,000 Americans filing new claims for jobless benefits in the week that ended on 29 December.

Bond markets in Europe, and particularly the United Kingdom, offered an interesting glimpse of the new equity market bullishness, with benchmark 10-year gilt yields rising past 2 percent for the first time since May of last year. However, demand for the day's biggest bond auction, a £3.75bn auction of five-year gilts, was a solid £7.9bn. The sale drew an average yield of around 0.956 percent.

France also tapped investors with a €3.5bn sale of bonds maturing in 2022 that drew a record low yield of 2.07 percent. Benchmark 10-year government bonds, known as OATs, traded at around 2.1 percent at the time of the sale.

Economic data in the UK was mixed, with the private data from Markit Economics and the Chartered Institute of Purchasing Managers showing a disappointing six-month low in construction sector activity. Housing data was also weak, with the Nationwide Building Society reporting a 0.1 percent drop in December home prices and a full 1 percent decline from the same period last year.

However, key data from the Bank of England offered some support for the pound, with a key banking survey showing a significant increase in consumer and small business lending in the final three months of last year and the anticipation of another burst of new credit in the first half of this year.

Employment data from Germany showed the number of jobless increased by a less-than-expected 3,000 last month, taking the total of unemployed in Europe's largest economy to just under 3m, according to Federal Labour Agency figures. The picture was also surprisingly optimistic in recession-hit Spain, which notched its first jobless rate fall - a decline of 590.094 according to the Spanish Labour Ministry - in at least five months.

Brent crude slipped from its four-week high of $112 per barrel to trade at around $111.87 by mid-day London time while US crude oil prices drifted 57 cents lower to around $92.55 per barrel. Gold also eased $16 from a fortnight high to change hands at $1,678.64 per ounce.

The commodity price slides were largely a reflection of the stronger performance of the US dollar on global foreign exchange markets. The Greenback gained a little more than 0.3 percent against a weighted basket of its major currency pairs to trade at a three-week high of 80.12.