bodes well for demand which translates into top line revenue growth. If global demand goes up, it's good for U.S. equities."
The benchmark 10-year Treasury note fell 5/32 in price to yield 1.8436 percent, as investors moved funds into stocks.
"It's a reach for return in the equities market," said Todd Colvin, senior vice president of global institutional sales with R.J. O'Brien & Associates in Chicago. "Risk takers are being rewarded so far this year."
January's flash euro zone purchasing managers index pointed to more weakness ahead for a region already mired in recession. But it also hinted at improvement later in the year.
"The pace of recession is clearly easing," said Marco Valli, chief euro zone economist at UniCredit.
The data showed the contrasting fortunes of Germany and France, with German activity at its strongest levels in a year and the French PMI at its lowest level since March 2009.
The growing confidence in the pace of China's economic recovery helped keep Brent crude oil above $113 a barrel. Gold fell $16.44 to $1,668.70 an ounce.
U.S. crude futures rose 72 cents to settle $95.95 a barrel.
The yen tumbled against the dollar, snapping a three-day advance, after a Japanese economic official said the government has no problem with the dollar hitting 100 yen.
The Japanese currency has weakened to about 90 per dollar from 80 since November on expectations Prime Minister Shinzo Abe will force the central bank to ease monetary policy to combat deflation.
The dollar was up 1.57 percent at 89.98 against the yen, while the euro rose 0.41 percent at $1.3371.