European Shares Eye One-Month High


European shares rose to near one-month highs on Tuesday on ebbing expectations of U.S.-led military action against Syria alongside robust macroeconomic data out of China.

The FTSEurofirst 300 was up 1.1 percent at 1,241.31 points by 1034 GMT, its highest level since Aug. 14.

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Late on Monday, U.S. President Barack Obama said he saw a possible breakthrough in the crisis with Syria after Russia proposed that Damascus hand over its chemical weapons for destruction, which could avert planned U.S.-led military strikes.

As concerns eased over a potential Middle East conflict, which would disrupt fuel supplies, oil prices fell, while airline stocks notched up strong gains, led by easyJet, Lufthansa and IAG, up 4.6-5.7 percent.

"This is obviously seen as a positive by markets which have been unsettled by what's been happening in Syria. In the meantime it allows them to focus on fundamentals," Henk Potts, market strategist at Barclays, said.

European stocks have risen strongly since late June, with the FTSEurofirst 300 up some 12 percent, supported by improved factory activity data from China, Europe and the United States.

Investors on Tuesday welcomed data showing China's industrial output growth beat forecasts in August, more evidence that its economy is picking up after a prolonged slowdown.

The data out of China, the world's top metals consumer, gave the mining sector a fillip. Glencore Xstrata was among the top performers after reporting better-than- expected synergies from the takeover of Xstrata.

"Mergers do tend to not deliver value for shareholders but it looks like this one might do it," said Joe Rundle, head of trading at ETX Capital

Rundle has short- and medium-term targets of 350 pence and 390 pence respectively on Glencore Xstrata shares. On Tuesday, it was trading up 2.8 percent at 330.20 pence.

Trading volume in Glencore Xstrata was solid at 93 percent of the 90-day daily average vs 46 percent for the index.

Some strategists have recently said the strong rally in the mining sector could start to run out in coming months, partly on the basis that valuations are now looking full.

The STOXX Europe Basic Resources index has jumped more than 20 percent from early July lows, significantly outpacing the FTSEurofirst, up some 7 percent over the period.

This has seen the 12-month forward price/earnings ratio for the sector rise to around 11.9 times from about 9.4 times, putting it above its 10-year average of 10.5 times, Thomson Reuters Datastream shows.

"We have a neutral stance on the sector. If anything the recent strength that we've been seeing is a chance for investors who are overweight ... to sell," Barclays' Potts said.