U.S. stock futures rose 2 percent on Thursday after a sharp drop on Wall Street overnight, limiting losses in Asian shares, though sustained gains depended on how Europe reacts to a sovereign debt crisis that is threatening its banking system.

Major European markets also were poised to draw some comfort from the U.S. futures bounce, with futures markets predicting British, French and German stocks would open as much as 2.0 percent higher.

The euro crept higher, but Europe's evolving crisis was too complex and disturbing to make any long-term bets. Trading was whippy and positions in currency and stock markets were built, slashed and then rebuilt within an hour.

Fast-moving rumors about a sovereign debt downgrade of France as well as talk doubting the health of French banks swirled in Europe caused the biggest widening in the benchmark index of European credit default swaps on Wednesday since the credit crunch in 2008.

The three major rating agencies later reaffirmed France's AAA rating, and said its outlook was stable, but markets remain concerned that French banks are among the most exposed to a worsening of Europe's government debt crisis.

European policymakers have been struggling to keep the euro zone's government bond markets from being savaged, but Wednesday's price action suggested the problems may be rapidly spreading to the private sector.

The market is in a bit of heat-seeking missile mode looking for vulnerabilities around the world, and Europe is obviously in its sights at this point in time, said Grant Turley, senior strategist at ANZ in Sydney.

STAYING DEFENSIVE

As S&P 500 futures firmed, Asian stocks pulled up from their lows and some markets such as Korea and China turned positive.

The Australian dollar, often a measure of investors' willingness to take risks, bounced above $1.02, suggesting traders and investors were being nimble rather than selling with blinders on in the face of risks to global growth.

Japan's Nikkei share average trimmed initial losses of 2.2 percent and was down 0.6 percent by midday, but still not far from a five-month low hit on Tuesday.

Carmakers and machinery makers fell as investors continued their shift into domestic-demand related and defensive sectors such as pharmaceuticals and retail from cyclicals, on worries over the state of the global economy and the strong yen.

Expectations the Bank of Japan would continue to step into the market to buy Nikkei exchange traded funds also limited the selloff in Tokyo.

S&P futures were up 1.9 percent after the cash index tumbled 4.4 percent overnight on Europe's crisis and fears that the U.S. economy could slide back into recession.

Tuesday's intraday low at 1,101 is major support for the index since it is also the 38.2 percent retracement of the 2009-2011 rally.

The benchmark MSCI Asia Pacific ex-Japan stocks index also pared early losses and was down 0.1 percent mid afternoon, though the outperformance of defensive sectors such as telecommunications and utilities suggested investors were fortifying their portfolios.

The index has fallen 13 percent so far in August, in line with the all-country world index, suggesting investors had not been discriminating in the equity sell-down.

Institutional fund managers were mostly confident about Asian assets and some have been trying to position their portfolios to gain when equities bounce and bond yield spreads over Treasuries tighten.

Khiem Do, head of Asian multi-asset with Baring Asset Management in Hong Kong, said some Asian mutual funds were seeing redemptions but nothing significant.

From the perspective of long-term institutional investors, if anything there are more people on the buy side than on the sell side. Valuations are very attractive at the moment especially in the case of Asia, Do said.

AUSSIE BOUNCE

The euro bounced as equities recovered from their lows, and found room to rise especially against the Swiss franc.

The Swiss National Bank increased its efforts to cap its currency overnight and promised more measures if needed.

The euro was at $1.4240, up 0.4 percent on the day, though locked within a tight trading range by the debt crisis in Europe and the U.S. economic slowdown.

Against the Swiss franc, the euro rose 1 percent to 1.0405, off its record low just below 1.01 hit on Tuesday.

I think the EU debt problem is far bigger a concern for Asia than the U.S. downgrade as investors are continuing to buy U.S. Treasuries anyways, said Francis Cheung, senior strategist with Credit Agricole CIB in Hong Kong.

I think we can see some rebounds here and there, but overall the sentiment is still very cautious.

High-yielding currencies were popular, with the Australian dollar up 1.1 percent to $1.0270, holding above Tuesday's drop to below parity but well below $1.10 where the currency started the month.

Commodities were a mixed bag, with copper prices jumping and oil slipping, while precious metals slid after a margin increase by the CME Group on gold futures and the equities comeback.

Spot gold prices were down 0.4 percent to $1,787.79 an ounce after earlier hitting an all-time high of $1,813.79. The undisputed safe haven has risen 10 percent so far this month and is up 26 percent in 2011.

The CME Group raised maintenance margins for trading Comex 100 Gold Futures by 22.2 percent, effective after the close of business on Thursday. The margin hike was not expected to be a big obstacle to further gold gains.

It's difficult to see a great deal of selling, because we are in very, very volatile and uncertain times when markets are moving very violently. Gold has proven too much of an attraction as an alternative investment and the margins may not have as much influence, said Darren Heathcote, head of trading at Investec Australia.

Three-month copper on the London Metal Exchange rose 3.1 percent to $8,860 a tonne, after losing 1.6 percent in the last session.

Oil futures slipped, with U.S. crude for September delivery down 0.1 percent at $82.78 a barrel, though well above Tuesday's intraday low of $75.71. Prices had jumped overnight after an unexpected decline in U.S. oil inventories.

(Additional reporting by Ian Chua and James Regan in Sydney and Swati Bhat in Singapore; Editing by Kim Coghill)

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