European Shares Rally, Traders Eye U.S. Data
European shares were sharply higher on Wednesday morning, extending a rally into a third session ahead of a raft of U.S. data this week that may determine whether the Federal Reserve acts to boost the struggling U.S. economy.
The FTSEurofirst 300 index of top European shares was up 1.4 percent at 952.76 points at 0906 GMT, after rising 1 percent in the previous session. It was on track to fall 12 percent in August, the biggest monthly fall since October 2008.
Investors have cut exposure to risky assets such as stocks following an escalation of the euro zone debt crisis, the United States losing its AAA credit rating and weak data from major economies that sparked concern they may go back into recession.
Stocks rose across the board on Wednesday, with miners among the biggest gainers. The STOXX Europe 600 Basic Resources Index was up 1.7 percent, though still down 28 percent in 2011.
Copper prices edged up, supported by a strike threat at the Grasberg copper mine in Indonesia and news of lower output from Chile.
Investors awaited the ADP employment report, weekly mortgage market index, Challenger job cuts, factory orders, the Institute for Supply Management-New York's index of regional business activity and the ISM Chicago's index of manufacturing activity.
"The ADP report will be important to the mood of the market before the non-farm payrolls data on Friday. Given the uncertainty over the U.S. economy, the payroll numbers are as important as ever," said Richard Jeffrey, chief investment officer at Cazenove Capital Management.
"The market has been shaken, and you would not call it resilient. But in the absence of bad news, it will probably drift higher. Over the summer period reality has been dawning, with investors realising that the recovery is not going to be straightforward."
The insurance sector rose 2.1 percent, led by Allianz , up 4 percent, after Goldman Sachs upgraded it to "buy" from "neutral" .
"In our view, Allianz has been sold off on what we see as excessive concerns over the sustainability of life earnings owing to the fall in German 10-year yields," Goldman said.
Across Europe, Britain's FTSE 100 was up 1 percent, Germany's DAX and France's CAC40 were both up 1.5 percent.
U.S. stocks rose for a third straight day on Tuesday in a volatile session, after minutes from the latest Fed meeting boosted expectations the U.S. central bank will act again to stimulate the economy.
VALUATIONS
The August sell-off has created buying opportunities, strategists say. Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 8.7, against a 10-year average of more than 13.
"Stock markets look a bit undervalued at the moment. There is potential for better times ahead," said Lothar Mentel, chief investment officer at Octopus Investments, which manages $4 billion.
He said more quantitative easing was "not on the cards" at the moment, adding: "The Fed is particularly concerned about the U.S. and the western world stumbling into a liquidity trap, interest rates low and inflation low. You get the Japanese disease of people postponing consumption, investment. If they need to stoke inflation they will."
Economic news in the euro zone's biggest economy surprised on the upside. German retail sales held steady in July in real terms, avoiding a drop expected by economists and showing resilience in the face of falling consumer confidence.
Among individual shares, French telecom, media and construction group Bouygues soared 11 percent after moving to address the recent sharp fall in its share price with a planned 1.25 billion-euro ($1.8 billion) share buyback and an upgrade of its 2011 sales target.
Finnish paper maker UPM-Kymmene Oyj rose 9 percvent after announcing plans to shut several mills.
Carrefour , Europe's largest retailer, fell 3.3 percent after saying full-year profits would slump 15 percent as it cuts prices in a bid to reverse market share losses in its home market and elsewhere in Europe.