European Shares Rebound as C-Bank Fears Cool

European shares rebounded from seven-month lows on Tuesday as supportive comments from central banks eased concerns over a tightening of global monetary conditions and stress in the debt market.

The pan-European FTSEurofirst 300 index rose 1.3 percent to 1,128.80 points by 1020 GMT, having shed 5.5 percent in the previous three sessions on an expected curbing of U.S. monetary stimulus and a spike in Chinese interbank rates.

China's central bank said on Tuesday that it would guide rates to reasonable levels and two U.S. Federal Reserve officials downplayed the notion of an imminent end to monetary stimulus.

Adding to the reassuring comments, a European Central Bank executive board member said Frankfurt needs to ensure euro zone bond yields are not adversely affected by the Federal Reserve's plan to dial back its stimulus programme.

"They're trying to calm things down without being too influential with the direction," Wouter Sturkenboom, investment strategist at Russel Investments, said.

"Central banks knew what they did and I don't think they're overly concerned with the market movement, but they don't want it to spin out of control either."

Russel Investments, which manages $180 billion, upgraded European shares to "neutral" from "underweight" this week, judging a 12 percent correction in the Euro STOXX 50 index since late May had left the index trading at attractive valuation multiples.

The Euro STOXX 50 trades at 11 times expected earnings for the next twelve months, a level not seen since before the rally peaked in May and off highs of nearly 12 seen in 2009, Thomson Reuters Datastream showed.

The index was up 1.3 percent at 2,544.78 points.

Among battered euro zone blue chips rebounding on Tuesday, traders highlighted German auto makers Daimler and Volkswagen <VOWG_ p.DE>, which shed around 15 percent since May, and French builder Vinci, initiated with a "buy" recommendation by Berenberg.

In the broader FTSEurofirst 300 index, chip maker Arm Holdings rose 3.1 percent as a 30 percent fall in the past month triggered an upgrade to "buy" from "hold" at Investec.

It topped Britain FTSE 100 index, which was up 1 percent at 6,086.53 points.

Rob Colville, head of technical trading firm The Lazy Trader, advised his clients to take profit on their short positions on the UK index after it hit a target at 6,100, a top tested in 2011 which was now serving as support.

"If you wanted a higher-probability, lower-reward profit outcome then it makes sense to cash out now as we have hit the first profit target," Colville said.

"If you accept a lower probability for a higher reward then wait for price action to reach (previous lows at roughly 5,900 and 5,500)."

Short sellers borrow a security and sell it, betting they will be able to buy it back at a lower price before returning it to the lender, pocketing the difference.