Europe stocks bounce on key support level, valuation

Europe stocks bounce on key support level, valuation

Paris: European stocks rose on Tuesday, with a key index bouncing on a strong support level after a seven-week slide, helped by hopes policymakers will find a solution to save Greece from missing its July debt payment.

The technical rally, however, could be short-lived as investor aversion for risk -- measured by the Euro STOXX 50 volatility index -- was just slightly retreating after jumping to a 3-month peak, with a significant number of skittish investors still on the sidelines ahead of a confidence vote in the Greek parliament for Prime Minister George Papandreou due later in the day.

Failure to win the vote would put a €12 billion lifeline for the debt-stricken country in doubt and raise near-term concerns about Athens’ ability to meet its debt payment next month.

At 4:13pm, the FTSEurofirst 300 index of top European shares was up 0.7% at 1,088.46 points.

The euro zone’s blue chip Euro STOXX 50 index was up 1% at 2,775.58 points. For the past three sessions, the index has been testing a key support level at 2,720 points, representing the year low hit in March. But Tuesday’s rally was capped, with the index unable to break out of a downward channel started in early May, signalling a lack of momentum on the upside.

“We have not had a clear capitulation to stop the bearish trend in progress. Yet the major supports at which we arrived a few days ago have held, they managed to stop the decline. The large majority of sectors are also on supports, some of them major ones," said Valerie Gastaldy, head of Paris-based technical analysis firm Day By Day.

“We are no longer sellers in the short-term. Downtrend against supports, the question must be decided by the market," she said.


Energy and mining shares featured among the top gainers, with BP rising 2.9% and Rio Tinto adding 1.7%.

Banking stocks, recently hammered by worries of a Greek debt default that would hurt the financial institutions’ balance sheets, were mixed on Tuesday, with Commerzbank up 2.2% while UBS was down 0.3%.

“From a valuation perspective, the equity market is very attractive. In a more normal environment, we would clearly be at a ‘buy´ level," said Marco Bruzzo, fund manager at Mirabaud Gestion AM, which has 10 billion Swiss francs ($11.86 billion) under management.

“But in the short term, the market is reined in by the sovereign debt crisis, the U.S. economic slowdown and China’s inflation risks."

Bruzzo favours stocks with strong cashflow and pricing power, such as Danone and L’Oreal , and is underweight Spanish and Italian stocks.

The market’s recent correction has dragged stock valuations to 3-month lows. The STOXX 600 index trades at 10.2 times expected earnings, below a 10-year average of 13.4.