By Sukriti Gupta, Medha Singh and Lisa Pauline Mattackal
(Reuters) -European shares rose from 14-month lows on Tuesday, after four straight sessions of heavy selling, although investors continued to closely watch developments as countries responded to sweeping U.S. tariffs.
The pan-European STOXX 600 was up 2.7% after slumping over 12% in the past four sessions. World stocks broadly recovered some ground lost in the past few days even as investors worried about a possible global recession triggered by an escalating trade war. [MKTS/GLOB]
The European Commission proposed counter-tariffs of 25% on a range of U.S. goods on Monday as the 27-member bloc grapples with tariffs on autos and metals already in place and faces a 20% tariff on other products from Wednesday.
However, it watered down some initial proposals, removing for example U.S. bourbon from its list. It has also offered a "zero-for-zero" tariff deal to Washington.
"We've moved from uncertainty to a little bit more certainty, and the market is trying to price that in," said Stephen Dover (NYSE:DOV), chief market strategist at Franklin Templeton, though he added that volatility is likely to remain high.
Germany's benchmark rose 2.5% after the index stopped short of confirming a bear market in the previous session.
J.P. Morgan said it now expects back-to-back interest rate cuts from the European Central Bank at its next four meetings. While forecasting a 1.5% hit to GDP growth by the end of 2026 due to the trade war, the brokerage sees the euro area avoiding a recession.
European equities continued to look attractive, Dover said, with less expensive valuations relative to U.S. stocks and the prospect of German fiscal stimulus likely to boost growth.
European pharma companies warned the European Commission president that U.S. tariffs would expedite the industry's shift away from Europe and toward the United States.
On the day, all major European sectors gained ground.
Investors piled into defence shares, lifting an index of those stocks 5.1%. The sector is among the best European performers this year.
Meanwhile, shares of lenders, which had been knocked down by slowing growth worries, rose 2.3% and stocks of insurers gained 4.1%.
Dutch chip equipment maker ASML (AS:ASML) and the UK's AstraZeneca (NASDAQ:AZN) were the biggest boosts to the STOXX 600, up 4.3% and 3.2%, respectively, and were among the biggest supports for the STOXX.
In company news, German chipmaker Infineon (OTC:IFNNY) Technologies edged up 0.8% after saying it would buy Marvell (NASDAQ:MRVL) Technology's automotive ethernet business for about $2.5 billion in cash, to expand its microcontroller segment.
Germany's Continental rose 4.6% after saying it plans to turn its ContiTech rubber and plastics division into an independent entity.