By Helen Reid
LONDON (Reuters) - A recovery among cyclical sectors and a raft of M&A news helped boost European shares further on Thursday, shaking off a tech-led sell-off which had spread across global markets earlier in the week.
Auto stocks (SXAP) led gains as Renault (PA:RENA) jumped 6.4 percent to a more than 10-year high after Bloomberg reported Nissan and Renault were in talks to merge.
Hopes of dealmaking spread to other auto stocks, driving them up too. Daimler (DE:DAIGn), Peugeot (PA:PEUP), Porsche (DE:PSHG_p) and Volkswagen (DE:VOWG_p) rose 1.6 to 3.3 percent.
Cyclical industrials, autos, and banking stocks drove the pan-European STOXX 600 up 0.2 percent. The index was still set for its worst quarter in two years, however, suffering a 5 percent decline.
Starting with a stellar rally in global equities in January, this quarter developed into a challenging one for stock markets with investors navigating a sharp spike in volatility, rumbling trade tensions and anxiety over the tech sector.
In Europe, slowing macroeconomic indicators have been taken as a "sell" signal for the region's equities, which had enjoyed a lift most of last year as a narrative of stronger economic growth took hold.
"Support from attractive valuations and fading FX headwinds is not enough to override the signal from relative macro surprises," said Deutsche Bank (DE:DBKGn) equity analysts, reaffirming their underweight position on European equities versus the U.S.
M&A news was the main driver on Thursday.
Besides Renault, Swiss Re (S:SRENH) was also a top gainer, up 2.3 percent after a report that Japan's SoftBank Group (T:9984), which has been in deal talks with the reinsurance firm, is looking to buy a 25 percent stake. [L8N1RB1CB]
Meanwhile services group Sodexo (PA:EXHO) sank 15 percent after cutting its full-year sales and profit margin outlook, reporting a weaker than expected second quarter.
"Given management guidance, we see potential for consensus EBIT downgrades of over 10 percent and material share price pressures, near term," said UBS analysts.
Peers Elior (PA:ELIOR) and Compass Group (L:CPG) also declined 2.2 to 2.4 percent, making the travel and leisure sector (SXTP) the worst-performing.
While cyclicals were ruling the roost on Thursday, defensive sectors have enjoyed something of a revival in recent weeks as investors rushed to the areas of the market traditionally seen as safer, with stable earnings and high dividends.
"Should concerns about a trade war escalate, defensive stocks would likely outperform ... We would be wary of cyclicals, in particular international ones," wrote Goldman Sachs (NYSE:GS) analysts.
Positioning on cyclicals is elevated, Barclays (LON:BARC) analysts found. Both European and global funds have increased their cyclicals exposure to near the highest levels in the last decade, adding especially to financials, tech and industrials.