European stocks rise on economic optimism

European stock indexes have risen slightly in early trading, supported by hopes inflation could be past its peak as markets softened their expectations for future Federal Reserve rate hikes.

Liquidity was thin overnight as markets in China, Hong Kong, Singapore, Malaysia, South Korea and Taiwan were closed for the Lunar New Year holiday.

At 0947 GMT, the MSCI World Equity index was up 0.3 per cent on the day, holding just below last week's highs.

Europe's STOXX 600 and London's FTSE 100 were both up 0.2 per cent on the day.

Signs of inflation softening, falls in commodity prices and the easing of China's COVID-19 restrictions have raised hopes so far this year that a global economic downturn might not be as severe as feared.

Money markets are pricing in a 98 per cent chance that the Fed will raise rates by 25 basis points next month and have steadily lowered the likely peak to 4.75 per cent to 5.0 per cent, from the current 4.25 per cent to 4.50 per cent.

"The market's still quite buoyant at the moment," said Peter Chatwell, head of global macro strategies trading at Mizuho.

He said markets were being driven by the idea that United States inflation has peaked.

"On the surface, it looks like inflation has been dealt with and the most likely path ahead is lower," he said.

"I'm still cautious about the inflation outlook for the second half of the year."

Wall Street rallied at the end of last week after a jump in Netflix and Alphabet shares.

Investors are waiting for eurozone and US flash PMI data on Tuesday, which are expected to show less severe economic contractions than the previous month, according to analysts polled by Reuters.

The data is forecast to show more improvement in Europe than in the US.

The US dollar index was down about 0.3 per cent at 101.59.

The euro was up 0.6 per cent at $US1.0918 ($A1.5639), having hit a nine-month high of $US1.0927 ($A1.5652), helped by an easing of recession fears amid a fall in natural gas prices as well as hawkish comments from European Central Bank governing council member Klaas Knot in an interview on Sunday.

The British pound was up 0.1 per cent at $US1.2409 ($A1.7775) and the Australian dollar, seen as a liquid proxy for risk appetite, was up 0.6 per cent at $US0.701 ($A1.004).

The dollar edged higher against the yen, up 0.2 per cent at 129.815, having fluctuated last week after the Bank of Japan defied market pressure to ease its ultra-loose monetary policy.

Eurozone bonds were little changed, with the benchmark 10-year German yield at 2.19 per cent.

Oil prices edged higher, with Brent crude up 0.5 per cent and US crude up 0.4 per cent.