London: European shares rose on Tuesday, led by mining stocks after forecast beating results from US aluminum producer Alcoa helped improved investor sentiment about the demand outlook for commodities.
Earnings news in Europe gave a more mixed picture, however, with Philips Electronics the top faller, down 5.9%, after it warned it will report slowing sales growth due to weakness in the European markets.
The STOXX Europe 600 Basic Resources index rose 2.1% after Alcoa, a bellwether for economic growth, said demand for aluminum which is used in cyclical industries like aerospace and automotive would increase in 2012.
“A good start to the earnings season, it shows demand outlook is not so bad and we could get more positive surprises,” said Mike Lenhoff, chief strategist and head of research at Brewin Dolphin Securities.
“It should help improve sentiment for the market, but we can not generalize on just one set of results and our portfolio remains defensive.”
Miners were also helped by firmer copper prices after Chinese data showed a rise in imports, which accounts for 40% of the refined metal’s global consumption.
Although the overall Chinese trade data showed exports and imports grew at their slowest pace in more than two years, it also boosted hopes that Beijing would relax monetary policy to contain a slowdown in the world’s second-largest economy.
Strong Asian demand helped take Swatch Group, the world’s largest watchmaker, up 3.6% to become one of the best performers after it reported record sales in 2011 and said it is confident of more growth in 2012.
By 03:00 pm, the pan-European FTSEurofirst 300 index of top shares was up 1.1% at 1,019.80 points after falling 0.5% on Monday, dragged down by banking stocks following Unicredit’s rocky start to its rights issue.
The index was bouncing off a key support level at 1,009.64 which it had touched in the previous session, its 23.6% Fibonacci Retracement from its recent December to January rally.
Resistance was seen at 1,028.07 points, its high reached in January as well as the high reached in its September to October rally, and a level it had tested twice last week.
Traders did not think that this was the start of a sustained rally, with two key Italian and Spanish debt auctions later in the week which will test investor appetite for risk for the two countries seen most exposed to the euro zone debt crisis.
Nomura said in a note that “according to our indicators, investors in European equity mutual funds are the most bearish than any period since July 2008.
“Our longer-term global cross-border equity investment flow indicator suggests an elevated level of risk aversion by overseas equity investors. The indicator is at the most depressed level over the past 25 years, apart from the period around the Lehman Brothers bankruptcy in 2008.”