European Shares Climb on Euro Optimism, Chinese Data

Markets Reuters

European shares rose on Monday, on optimism that policymakers were closer to an agreement on measures to tackle the euro zone sovereign debt crisis, and with miners lifted by strong manufacturing data in China.

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European Union leaders made some progress towards a strategy to fight the debt crisis on Sunday, though final decisions were deferred until a second summit on Wednesday.

The STOXX Europe 600 Banking Index rose 1.3 percent, after policymakers appeared to make progress on bank recapitalisation.

However, Greek banks fell 15 percent on worries that a deeper markdown on Greek government bonds held by the private sector would force lenders to seek state support to recapitalise.

At 0841 GMT, the FTSEurofirst 300 index of top European shares was up 0.2 percent at 980.33 points, after rising 2.5 percent on Friday, and notching up four weeks of gains.

However, some strategists remained sceptical and said gains might be short-lived.

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"I would still be looking to sell into this rally, rather than believe that 'this time it's different' because it absolutely isn't," said Jeremy Batstone-Carr, strategist at Charles Stanley.

"How much longer is it going to take before they realise there is no solution to this (euro zone crisis) or least not one that doesn't involve a vast amount of money?"

He said the bond market had a "different interpretation" on the weekend's events. German Bund futures reversed early losses.

MINERS GAINS

Miners gained, tracking copper prices on strong data from top metals consumer China. The STOXX Europe 600 Basic Resources Index rose 2.6 percent, with gainers including heavyweights BHP Billiton and Rio Tinto , up 2.9 and 3.4 percent respectively.

China's vast manufacturing sector expanded moderately in October to snap three months of contraction, reflecting the resilience of robust domestic demand that is likely to soothe fears of an abrupt slowdown in the world's second-largest economy.

But other macroeconomic news was downbeat. The euro zone's private sector tipped further into decline in October, according to business surveys that showed the bloc's economy is in serious danger of lurching from stagnation into outright recession.

The pan-European index is down 12 percent so far in 2011. As well as the euro zone debt crisis, investors have worried about slowing growth in major economies.

However, it is up 15 percent from a low last month, on increasing optimism that policymakers were finally acting to stem the crisis.

Batstone-Carr said European equities were rangebound, and cheap valuations would keep them above the September low.

Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 9.2 against a 10-year average of 13.2.

"A break to the upside is still a possibility. The chart shows that resistance coincides with a 50 percent retracement of the decline that began in late July, so the short-term upside target would be in the region of the 61.8 percent level, at 1012 or so," said Bill McNamara, technical analyst at Charles Stanley.

Analysts at Nomura said the market's reaction to corporate earnings season was also providing support for European equities.

"There is a big contrast between the earnings trends in the US and Europe," Nomura said in a note, adding that it remained "overweight" on European equities.

"Although profits are growing much more quickly in the US, the 'relief' factor that things have not been even worse in Europe has had a more notable impact on share prices."

Among individual stocks, Swatch , the world's largest watchmaker, rose 3.5 percent in high volumes. The company is on track to post record sales this year and growth shows no signs of slowing, the group's CEO was quoted as saying in a Swiss newspaper on Sunday.

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