European Markets Climb on China Stimulus Hopes

Reuters

European equities rose on Tuesday following a stronger showing in Asia, where the spotlight fell on the possibility of further policy stimulus in China, although fears over Spain's banks lent a cautious note.

The FTSEurofirst 300 was up 0.6 percent at 989.76 by 0816 GMT, having slipped into negative territory at Monday's close, down 0.1 percent, on worry about the growing cost to Spain's public purse of propping up the country's lenders.

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Mining stocks rose sharply, up 2 percent on optimism about a potential uptick in demand as investors speculated that China, whose biggest export market is crisis-hit Europe, may soon launch a stimulus programme to avoid a sharp slowdown.

"Eyes have now turned to China where stimulus by the government is apparently imminent," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million of assets.

"The market continues to be driven by hope, more than by reality. Staying on the sidelines for a bit seems the right strategy," he said.

Spain's IBEX underperformed again, off 0.6 percent, weighed down by banking heavyweights Santander and BBVA , with struggling lender Bankia restating 2011 results on Monday to reflect a 3.3 billion euro loss as the government proposed putting sovereign debt into the lender.

Spanish 10-year bond yields remained at elevated levels, just below 6.5 percent, keeping fears alive that the country will no longer be able to afford to fund its spending.

A level above 7 percent is widely seen as unsustainable and could force Spain to seek an international bailout, as did Greece, Ireland and Portugal.

Questions over Greece's fate preyed on investors' minds ahead of next month's election, although weekend polls which showed pro-bailout parties gaining ground assuaged some fears about a possible Greek exit from the euro zone.

"In the event of a Greek exit we see the market having a sharp sell-off then rebound quickly as much of the bad news is now priced in at current level," Atif Latif, director at Guardian Stockbrokers, said.

"The chief concern is now uncertainty and the lack of information on how to best avoid wider contagion issues and to maintain growth levels."

U.S. economic figures could help distract investors jaded by worry about euro zone debt, with ADP, ISM and non-farm payrolls highlights later in the week.