European shares extend gains on data, technicals

European shares extend gains on data, technicals

London: European equities drifted higher on Monday, adding to sharp gains in the previous session as economic numbers revived hopes that the global economic recovery could remain on track, while firmer metals prices prompted investors to buy mining stocks.

The market also witnessed some technical buying as key stock indexes had become oversold following a heavy sell-off in the past two weeks, analysts said.

However, lingering concerns about the ability of European policymakers to effectively handle the euro zone debt situation and prevent the crisis from spreading to some other countries such as Spain and Italy forced investors to stay cautious.

Miners featured among the top gainers, tracking a rise in key base metals prices on hopes of improving demand for raw materials. The mining index rose 0.8%, while BHP Billiton rose 1.2%.

At 2:20pm, the FTSEurofirst 300 index of top European shares was up 0.4% at 971.76 points. The index surged 3.7% on Friday, helped by strong U.S. retail sales figures. Data on Monday showing Japan’s GDP shrank less than expected in the second quarter also improved sentiment.

“If America is not as weak as had been suggested, and we now get a bit of rebound out of Japan, then that’s something to go forward," said Mike Lenhoff, chief strategist at Brewin Dolphin.

“The markets have been technically very oversold and on that basis alone, they are due for a period of remission from the selling. Although there are a lot of concerns about the way in which earnings are going to go, the results on balance have been quite good."

Analysts said the stock market was expected to see a pause in the downtrend or even witness a short-term technical rally after suffering heavily in the past two weeks, during which time key European indexes plunged to two-year lows.

The Euro STOXX 50 , the euro zone’s blue chip index, was up 1% at 2,329.71 points. Analysts said important pivot points for the index were 2,352 and 2,437 -- its 38.2-percent and 50-percent retracements from the July-August sell-off.

“Especially the latter is important to watch as it is also near the gap on the daily candlestick chart at 2,412, which was filled but not closed during more than three sessions, making that area a strong resistance," said Dmytro Bondar, technical analyst at RBS.

“Unless the price manages to close above the 2,412 level, I would expect further declines in the price action when the correction ends. Important levels on the downside include 2,246, 2,077 and 1,907."


JPMorgan said equity markets, oversold after the recent “flash crash", would provide good opportunities for those willing to look beyond current extreme volatility.

European corporates well placed to benefit, and which hold an “overweight" rating by JPMorgan, included BASF <BASFn.DE>, which rose 1.8%, helping the European chemical sector to gain 1.4%.

Analysts said equities were set to remain choppy as a lot of people were away on summer holidays. Markets in Austria, Greece and Italy were closed on Monday for a public holiday.

“I would probably look for more stability to come at the end of the month when most people are back from holidays. In the meantime, you will find that people buy defensive stocks such as utilities, food and healthcare," said the head of investment dealing at a fund that manages about $80 billion.

Investors stayed cautious following various comments and suggestions from policymakers to tackle the euro zone debt crisis, which has hurt equities, especially European banking stocks that are exposed to the region.

“The chief worry is still very much focussed on Europe. The markets are not really getting the kind of message that should be coming from the leaders who are supposed to be offering some kind of guidance and should be quite assertive in dealing with the situation," Lenhoff said.

Britain’s Finance Minister George Osborne said some kind of fiscal union may now be needed for the 17-member euro area, while the head of Germany’s leading export association urged the leaders of Germany and France to agree at a meeting in Paris on Tuesday to issue joint euro zone bonds, an idea that Berlin has strongly opposed until now. .

Among individual movers, Aker Drilling spiked 98% on news the world top oil drilling contractor Transocean is to pay $1.43 billion for Aker, almost double the market price, to boost its presence in Norway and at the high-tech end of the industry.