London: European shares hit a five-week high on Wednesday, with miners boosted by stronger metals on signs of Chinese restocking and on expectations that Slovakia’s failure to ratify the euro zone’s rescue plan was a temporary blip.
Equities were also supported by data showing euro zone industrial production was stronger than expected in August.
The European mining index was up 2.2% after copper prices rose more than 2% and other key base metals also advanced. Analysts said Chinese consumers were buying copper to meet immediate demand, which has tightened supply in Asia.
Auto shares featured among the top gainers, the sector index rising more than 3%, with luxury carmakers such as BMW and Daimler in particular helped by hopes of improving demand for their vehicles.
At 3:44pm, the FTSEurofirst 300 index of top European shares was up 1.1% at 972.18 points after falling to a low of 952.50 earlier in the session. But the index is still down about 14% this year on concerns of a Greek default and the debt crisis spreading to other countries.
“Markets are clearly still hoping for a comprehensive plan to tackle the (euro zone) debt crises. This may continue to support the market over the next couple of months,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
“In Slovakia, a ‘yes´ vote may follow shortly. However, it once again demonstrates how difficult a democratic decision process with 17 members (of the euro zone bloc) may be.”
Parties in Slovak Prime Minister Iveta Radicova’s outgoing government will hold talks with the opposition to reach a quick agreement after its Parliament failed to ratify a deal to expand the euro zone’s EFSF rescue fund, which is central to the bailout of Greece. Slovakia is the only one of the 17 countries not to have ratified, but a second vote is expected to succeed within days.
German Chancellor Angela Merkel said she was certain there would be full ratification by the time of the European Union summit on 23 October.
Basic resources shares came under pressure earlier in the session on weaker than expected results overnight from US aluminum giant Alcoa on tough economic conditions.
“Caution is still the watchword,” said Keith Bowman, equity analyst at Hargreaves Lansdown.
“But we can’t read too much into just one set of results. Additionally, there is still hope that Slovakia will pass the expansion of the bailout fund in the very near term.”
Investors awaited an announcement by the European Union on a bank recapitalisation plan later in the day that is designed to cushion the impact of a possible default by Greece on the region’s banks. The European banks index was up 1.2%.
Analysts and fund managers said investors should buy defensive sectors such as healthcare and telecommunications in the current volatile trading conditions.
“We like healthcare stocks as the sector’s outlook is improving. The drug pipeline is also improving, their margins are still very high, and they are cash generative,” said Felicity Smith, fund manager at Bedlam Asset Management, which manages $700 million.
Smith liked Sanofi Aventis for its high exposure to emerging markets, where demand for medicines is growing.
In the context of sluggish economic growth and poor returns on cash, Societe Generale strategists recommended going long on shares of European telecoms and short on utilities.
“Investors are hungry for high-yielding safe assets. Telecom companies have spent around a decade strengthening balance sheets damaged by a frenzy of merger and acquisition activity during the Dotcom bubble,” they said in a note.
The euro zone’s blue-chip Euro STOXX 50 index rose 1.6% to 2,352.31 points. The index has moved above its Sept. 1 peak and is now at its highest since mid-August.