London: European shares bounced back in morning trade on Wednesday as strong banking results boosted financial shares, while tough austerity measures announced by Spain provided some relief to jittery investors.
At 1:52pm, the FTSEurofirst 300 index of top European shares was up 0.7% at 1,042.15 points after falling to a low of 1,027.41 earlier in the session.
The index dropped 0.4% on Tuesday after surging 7.4% in the previous session as the European Union and International Monetary Fund agreed a $1 trillion rescue package to prevent a euro zone sovereign debt crisis spreading.
Financials were among the top gainers, with sector results across Europe mostly beating estimates as margins improved, volumes rose and bad debt provisions fell.
The STOXX Europe 600 banking index rose 1%, with French bank Natixis up 3.3% after beating forecasts on Tuesday after markets closed.
Italian banking leader UniCredit, Dutch bancassurer ING and Belgian KBC rose 2.3 to 5.9% after all three also posted results.
German insurer Allianz was up 2.7% as it stuck to its 2010 profit goal. Other gainers included Barclays, Lloyds, Credit Agricole and Commerzbank, up 0.2 to 1.9%.
“The markets are encouraged by the fact that authorities are trying to get to grips with the significant fiscal issues they face on a macro level,” said Henk Potts, equity strategist at Barclays Wealth.
“Investors should continue to be reassured by the bright pictures being painted by consensus-beating results from the reporting season.”
Spain’s Prime Minister Jose Luis Rodriguez Zapatero said the country will cut public spending by 6 billion euros and civil service wages will be slashed by 5% this year as part of a drive to meet EU deficit targets.
The measures aim to reduce the country’s budget deficit to 6% of gross domestic product in 2011 from 11.2% in 2009 as Spain fights to stave off a debt crisis afflicting the euro zone.
Some analysts, however, advised caution.
“The liquidity crisis has gone but the solvency crisis still persists,” said Koen De Leus, economist at KBC Securities.
“Volatility is going to continue as uncertainty remains and the details of the EU/IMF deal are yet to be worked out.”
Energy shares rose as crude oil prices recovered after early losses. BG Group, Repsol and StatoilHydro added 0.4 to 0.9%.
Among individual stocks, Danish shipping and oil group A.P. Moller-Maersk gained 7.4% as it raised 2010 profit guidance after a forecast-beating first quarter driven by recovering freight rates and higher oil prices.
Deutsche Telekom was up 2.8%. It reiterated its 2010 outlook after reporting first-quarter results largely in line with expectations thanks partly to its German mobile business and operations abroad.
Across Europe, Britain’s FTSE 100 index was flat. Conservative Party leader David Cameron took over as British prime minister and said he planned to form a coalition government with the smaller Liberal Democratic party.
Germany’s DAX rose 1.2% and France’s CAC 40 was up 0.5%.