London: European shares nudged higher on Thursday as a strong finish on Wall Street and firmer Asian equities following encouraging US economic numbers increased the risk appetite of investors, though caution prevailed.
European real estate shares were the biggest winners, with the sector index rising 2%, led higher by Capital Shopping Centres. It jumped 8.6% on bid interest from US real estate company Simon Group.
At 3:10pm, the FTSEurofirst 300 index of top European shares was up 0.3% at 1,090.52 points after rising to a high of 1,092.82. The index rose 1% in the previous session following a six-week closing low on Tuesday.
Euro zone debt problems stayed in the background and analysts said the crisis could flare up anytime, jeopardising a rebound in equities that rode on improving economic outlook.
Koen De Leus, strategist at KBC Securities, said the market was getting some support from Wednesday’s good data on consumer spending, jobless claims and consumer confidence, which came in much higher than expected, but uncertainties persisted.
“Markets are on a rollercoaster. Despair on the ride down due to the day-by-day increasing debt contagion in Europe is occasionally relieved by better-than-expected macro data from Europe and the US It’s a delicate balance,” he said.
Investors were monitoring a by-election in Ireland. The ruling party is expected to lose the Donegal election, reducing the government’s majority in the lower house of parliament at a time when it is desperate to get the 2011 budget passed.
The budget is the first step in the 15 billion euro ($20 billion) austerity plan that proposes deep spending cuts and tax increases to meet the terms of an EU/IMF bailout.
“The debt crisis has to be resolved fast otherwise confidence is going to slip. At that point no economic data will help and we will have a serious correction,” De Leus said.
On Wednesday, figures showed German business sentiment rose in November to its strongest since 1991, new US claims for unemployment benefits last week dropped to their lowest in more than two years, and US consumer spending rose in October.
Appetite for risky assets rose, with the VDAX-NEW volatility index falling 2.1% after a drop of 7.3% in the previous session. The lower the index, which is based on sell and buy options on Frankfurt’s top-30 stocks, the higher the market’s desire to take risk.
Miners featured among the top gainers on hopes that an economic recovery will increase demand for raw materials. The STOXX Europe 600 Basic Resources index rose 1.6%, while Xstrata was up 1.2%.
The Euro 50, the euro zone’s blue-chip index, fell 0.4% to 2,748.09 points. The index, which fell below its 50-day and 200-day moving averages on Monday, faced strong resistance at 2,805.95, its 61.8% Fibonacci retracement of a fall from a high in April to a low in May.
The Europe 600 banking index was flat, though Bank of Ireland jumped 9.4% after tumbling 44% in the past three days.
Solar equipment maker Centrotherm rose 5.9% on a Credit Suisse upgrade.
“We upgrade from Neutral to Outperform due to improved size and quality of the order book and low valuation, which already discounts a cyclical order decline in 2011.”
Trading was likely to be subdued on Thursday as Wall Street was closed for the Thanksgiving Day holiday.