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China optimism inspires bounce in European shares

Published 06/14/2011, 01:24 PM
Updated 06/14/2011, 01:28 PM

* FTSEurofirst 300 index closes 0.8 pct higher

* Heavyweight banks among risers

* Glencore and ENRC fall, limiting gains for mining sector

By Brian Gorman

LONDON, June 14 (Reuters) - European shares rose sharply on Tuesday, as data suggested the Chinese economy may avoid a hard landing, helping to ease global growth concerns.

The pan-European FTSEurofirst 300 <.FTEU3> index of top shares rose 0.8 percent to close at 1,100.86 points, though it is down 3.6 percent in June, hit by worries about the euro zone debt crisis and the pace of global economic growth.

Volume was 90.5 percent of the 90-day average.

"The market got a bit oversold with a number of stocks trading below 200-day averages, and we had reasonable data out of China which broke the trend (of recent bleak macroeconomic news)," said London-based James Buckley, a fund manager at Baring Asset Management, which manages 30 billion pounds ($49.2 billion).

"At a time when there's no real corporate news flow, that combination has been enough to push the market higher."

Buckley said shares would move higher by the year-end, supported by company earnings, and that he was putting a "bit more risk in the portfolio". He likes sectors "that are exposed to corporate spend", such as technology.

In an across-the-board rally, heavyweight banks were among the gainers.

BNP Paribas , Banco Santander and UniCredit rose between 2.3 and 2.5 percent, though the STOXX Europe 600 Banking Index <.SX7P> is still down 4.9 percent in 2011.

Investors were encouraged by a flurry of Chinese data that suggested the country's economic growth was not slowing too quickly, and as China's central bank raised bank reserve ratios to try and curb inflation. [ID:nL3E7HE05P]

U.S. retail sales fell in May for the first time in 11 months as receipts at auto dealerships dropped sharply, but the decline was less than expected, offering hope of a pick-up in economic activity. [ID:nLDE75D1KV]

Across Europe, Britain's FTSE 100 <.FTSE> rose 0.5 percent, while Germany's DAX <.GDAXI> and France's CAC40 <.FCHI> rose 1.7 and 1.5 percent respectively.

NO SOLUTION

The UK benchmark underperformed, with its heavyweight mining sector managing only slender gains despite a sharp rise in copper prices.

Commodities trader Glencore fell 4.5 percent after missing forecasts despite posting a dramatic 45 percent jump in first-quarter earnings, after its key metals trading unit was hit by a drop in Japanese demand and lower volatility. [ID:nLDE75C0JN]

ENRC fell 1.9 percent, after Glencore said it was not actively considering a bid for the Kazakh-focused miner.

The euro zone blue-chip index <.STOXX50E> rose 1.7 percent to 2,779.94 points.

The index's price-earnings ratio is "near the lower edge of the range of the last 18 months", said UniCredit in a note.

"In the event of a pullback in stock prices, the support becomes steadily stronger in the 2,700/2,650 area. If, however, the EMU crisis were to escalate ... the support would become less sustainable."

"More money for Greece" would mean short-term relief, but is no solution to the crisis as such, said UniCredit.

Its year-end target for the index is 2,900, but added: "During the summer months we expect, in contrast, clearly lower index levels."

For the coming months, it recommends defensive stocks and that investors should also focus on sectors that profit from positive, stable domestic demand in central and northern Europe: retail and personal & household goods."

Paris-based technical analysis firm Day By Day said it sees support at 2,720 points -- a low hit in mid-March -- 2,688 and 2,640, and resistance at 2,790 points, 2,840 and 2,909.

(Additional reporting by Joanne Frearson; editing by David Hulmes)

($1=.6093 Pound)

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