European stocks were set to open higher on Monday after data about China helped allay fears of a hard-landing in the world's second-largest economy, while the euro steadied on hopes that Europe's leaders were making some progress toward tackling the region's debt crisis.

Futures for Euro STOXX 50, for Germany's DAX and for France's CAC were all us between 0.8 and 1 percent. Financial spreadbetters earlier predicted Britain's FTSE 100 <.FTSE> to open as much as 1.1 percent higher.

At a summit on Sunday, European Union leaders neared agreement on bank recapitalization and the use of European Financial Stability Facility (EFSF) to stave off a bond market contagion.

Sharp differences remain, however, over the size of losses that private holders of Greek government bonds will have to accept. Final decisions were deferred until a second summit on Wednesday.

But an indication of a modest pick-up in China's manufacturing sector, which snapped a three-month contraction, provided some relief to risky assets on Monday with Asian stocks outside Japan up 3.6 percent.

HSBC's flash Purchasing Managers' Index rose to 51.1 in October from September's final reading of 49.9, climbing above the 50-level that separates expansion from contraction for the first time since July.

Turnover remained light across Asian exchanges as traders await final details of a possible euro zone solution expected this week.

Asian credit spreads also tightened on hopes that European leaders will look beyond stop-gap measures and unveil a durable solution on Wednesday.

In Japan, the Nikkei <.N225> closed up 1.9 percent with Olympus shares <7733.T> still dominating trading volumes as it plunged to its lowest level since 1998.

In the latest twist to the Olympus saga, which has now wiped off half of the company's market value, media reports suggest the U.S. Federal Bureau of Investigation was probing certain fees paid to advisors.

A strong yen, which rose to a record high against the dollar on Friday, is likely to cap gains and keep Japanese stocks trading in a range held since September, with last week's high of 8,911.7 as near-term resistance.

Japan's finance minister put traders on alert for possible currency intervention on Monday after the yen's rise to a record high threatened to further squeeze exporters' profits and hold back economic recovery.

Funds are still positioned defensively, strategists from Citigroup said in a note on Monday, with portfolio managers trimming positions in Southeast Asia and adding to defensive sectors such as telecoms.

If later this week there is better-than-expected GDP data from the U.S. as well as a credible solution to the euro zone's problems, funds could dip back into cyclicals and help sustain Monday's bounce in risky assets.

FIRMER EURO

The euro stayed supported, and reversed earlier losses against the dollar that came on the back of light profit-taking from macro players, as markets clung to hopes that European policymakers were moving closer to stemming the region's debt crisis.

The euro was trading at $1.3903 extending Friday's 0.8 percent move higher.

It doesn't feel to me like we're going to see a big risk rally, but we could easily see this deal done, risk remains relatively well supported, especially if we start thinking of things like another Fed quantitative easing, that'll help keep market focused on a weaker U.S. dollar, said Greg Gibbs, strategist at RBS in Sydney.

Commodity currencies, usually sold off in times of market stress, also rose. The Australian dollar stood at $1.0411, up 0.8 percent versus New York's $1.0331 close on Friday.

In commodities markets, U.S. crude for December delivery rose 1 percent while spot gold rose 0.5 percent to $1649.29 an ounce.

Copper gained for a second straight session with the most active January copper contract on the Shanghai Futures exchange rising 5.1 percent to a high of 54,280 yuan ($8,502.51) a tonne shortly before its midday close.

(Additional reporting by Ian Chua in SYDNEY; Editing by Richard Borsuk)

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