GLOBAL MARKETS-Chinese and European shares rise; data, politics and geopolitics all in focus

Updates throughout after morning European trading

By Rae Wee and Alun John

SINGAPORE/LONDON, Feb 21 (Reuters) - European shares rose on Friday, following peers in Asia that hit a three-month high on AI optimism, although gains were tempered by weak economic data and uncertainty ahead of Sunday's German election.

Europe's broad Stoxx 600 .STOXX climbed 0.5%, reversing two days of declines and pushing back towards a record high touched earlier in the week. S&P 500 futures were flat. .ESc1

Germany is one major focus in Europe, and shares have been volatile this week as investors try to position ahead of the vote.

Their main question is whether it will result in a government and parliament willing or able to reform the country's "debt brake", which limits Germany's structural deficit.

The blue-chip DAX .GDAXI, one of 2025's best-performing benchmarks so far, nudged up 0.2% and is around 2.5% below Wednesday's record peak. D omestic-focused German mid caps rose 1% on Friday, having reached a seven-month high early this week before falling sharply. .MDAXI

"With DAX up 13% year-to-date, it may see some downside if the status quo prevails and smaller parties secure a blocking minority," Barclays analysts said in a note.

In contrast, they say, if a more pro-reform parliament is elected, they see potential for both mid and large caps to gain.

More German spending would likely boost the euro, and weigh on government bonds.

Investors are also trying to process the implications of negotiations between the U.S. and Russia over a possible ceasefire in the three-year-old war in Ukraine.

Shares in Europe had been rising on hopes of peace, but have recently stalled, and hostile rhetoric from U.S. President Donald Trump towards Ukraine has left investors in its bonds in shock.

There was economic data out too. Business activity in Germany's private sector picked up slightly in February, but contracted by much more than expected in France.

British retail sales rose in January.

Overall, this left the euro lower against both the pound and the dollar at $1.10446, EUR=EBS and 82.76 pence, EURGBP=D3 while euro zone bond yields dropped. FRX/ [GVD/EUR]

CHINA SURGE

There was plenty happening in Asia as well.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS jumped more than 1% on Friday to its highest since November 8, putting the index on track for a sixth straight week of gains - the longest such winning streak in over two years.

The move was led by a surge in Hong Kong- and China-listed stocks, which saw the Hang Seng Index .HSI scale a three-year peak and push the CSI300 index .CSI300 1% higher..SS

Alibaba 9988.HK, up 12.7% after it reported better-than-expected revenue, was the day's poster child. But Chinese stocks have been on a tear in recent days, driven by DeepSeek's AI breakthrough that reignited investor interest in China's technology capabilities.

The Hang Seng Tech Index <.HSTECH> has gained nearly 30% for the year thus far; the S&P 500 .SPX is up just 4% over the same period.

"DeepSeek has been a catalyst for sentiment changing," said Brian Arcese, portfolio manager at Foord Asset Management.

Also in the mix, earlier this week Chinese President Xi Jinping held a rare meeting with some of the biggest names in China's technology sector, urging them to "show their talent" and be confident in the power of China's model and market.

The other mover in Asia was the Japanese yen, which took a breather after its recent rapid appreciation.

The dollar was last up 0.6% on the yen JPY=EBS at 150.49 after comments from Bank of Japan Governor Kazuo Ueda allayed concerns that the central bank might be considering a more aggressive rate hike stance.[JP/]

Those comments outweighed data also on Friday showing Japan's core consumer inflation hit 3.2% in January, its fastest pace in 19 months.

In commodities, oil prices dipped but were headed for a weekly gain. O/R Brent crude oil futures LCOc1 eased 0.65% to $75.98 a barrel, but were set to rise more than 2% for the week.

Gold XAU= hovered near a record high and was set to extend its gains for an eighth consecutive week. [GOL/]