European shares rally from two-year low

European shares rally from two-year low

London: European shares rose sharply on Wednesday, bouncing from a two-year closing low, after a late Wall Street rally on better-than-expected services sector data.

Stocks were up across the board, with the STOXX Europe 600 Banking Index up 3.3%. Greek banks rose 6.5%.

Shares extended gains slightly after a German court ruled against blocking bailout packages.

Germany’s Constitutional Court rejected a series of lawsuits aimed at blocking Germany’s participation in bailout packages for Greece and other euro zone countries, but said parliament must have a bigger say in future rescues.

The country’s highest court in Karlsruhe said the German government must seek the approval of parliament’s budget committee before granting such aid, a requirement which could further slow down Europe’s response to the debt crisis.

“It was in line with expectations. We got a brief pop higher in equity markets. It doesn’t really change much, except the perception that the euro might collapse, if the Germans ruled (bailouts) unconstitutional, so that fear has gone in the short term. But it doesn’t change the underlying fundamentals," said Michael Hewson, market analyst at CMC Markets.

At 0901 GMT, the FTSEurofirst 300 index of top European shares was up 2.3% at 924.54 points, after falling 0.7% in the previous session to its lowest close since July 2009.

The index has lost more than 17% in 2011.

Across Europe, Britain’s FTSE 100 rose 2.3%, Germany’s DAX was up 2.9% and France’s CAC40 rose 2.8%.

The Euro STOXX 50 rose 2.8% to 2139.25, but technical analysts were bearish.

“The decisive breakdown below 2,147 has set the stage for a retest of the 2009 low around 1,826." said Richard Ross, global technical strategist at Auerbach Grayson.

Recent weakness had made equities look cheap.

“There is this nagging fear that valuations don’t really count for anything. Investors need more confirmation suggesting it’s best to stick to companies with robust balance sheets that are paying cash in the form of higher dividends," said Jeremy Batstone-Carr, strategist at Charles Stanley.

He said cyclical stocks might gain most if the rally were to be extended.

European banks have fallen more than 33% in 2011; the Basic Resources Index is down more than 28%.

“It is possible that the falls we have seen are over-reacting to the global crisis. The implication is that profits will fall, whereas global growth is still perceived to be positive," Batstone Carr said.

Swiss company Richemont , home to luxury brands such as Cartier, rose 4.6% after beating expectations for five-month sales, helped by Asia.

Richemont extended gains from the previous session, when Swiss stocks surged 4.4% after the Swiss National Bank said it would set a minimum exchange rate target of 1.20 francs to the euro.

BP gained 3.4% after the British oil major made a deep water discovery in the Gulf of Mexico with its partner US firm Chevron Corp , the operator of the well.

Wall Street pared losses on Tuesday, after the pace of expansion in the US services sector was shown to have unexpectedly accelerated in August.