Europe shares halt week-long slide; Nokia slumps

Wed Apr 11, 2012 1:18pm EDT

* FTSEurofirst 300 up 0.8 pct, Euro STOXX 50 up 0.9 pct

* Nokia hits lowest level since 1997 after warning

* Investors brace for Thursday's Italian bond auction

* Pull-back offers good arbitrage plays -Cholet Dupont CIO

By Blaise Robinson

PARIS, April 11 (Reuters) - European stocks rose on Wednesday, halting a week-long slide as recently battered banks rallied, although the rebound was seen as technical and could be short-lived, with investors bracing for a key Italian government bond auction on Thursday.

The FTSEurofirst 300 index of top European shares closed 0.8 percent higher at 1,033.80 points, after losing 5.4 percent in four sessions.

Shares in euro zone banks led the rebound, with Intesa SanPaolo up 5.5 percent and Commerzbank up 4.1 percent, with traders mentioning short covering.

The sector index had tumbled 21 percent in three weeks, hammered by the return of fears over the region's sovereign debt crisis, with Spain and Italy in the spotlight.

"It's just a short-term technical bounce after a brutal drop. The fact is that everything has been broken on charts: trendlines, channels, 200-day moving averages," said David Thebault, head of quantitative sales trading at Global Equities in Paris.

"We've got Italy's bond auction tomorrow and China's GDP figure on Friday morning. Needless to say that the risk is on the downside. The only interesting thing to buy at the moment is volatility."

The Euro STOXX 50 volatility index, Europe's main barometer of anxiety known as VSTOXX index, dipped on Wednesday after surging 50 percent in a week.

On Wednesday, Italy's one-year borrowing costs doubled in a sale of short-term bills, fuelling fears over weaker euro zone countries and highlighting investors' nerves ahead of a more challenging auction of three-year bonds expected on Thursday.

Italy plans to offer up to 5 billion euros, including its March 2015 BTP bond and 3 off-the-run issues, with yields expected to rise there too.

Worries that Spain's budget troubles spread to Italy and the slow progress made by Rome on structural reforms have recently reversed a falling trend for Italy's debt costs, with the 10-year bond yield back above 5.5 percent.

In corporate news, Nokia was in the spotlight on Wednesday, with its shares plummeting 14.5 percent and hitting their lowest level since 1997 after the mobile phone maker warned its phone business would post losses in the first two quarters this year as it struggles to revamp its product line to compete with rivals Apple and Samsung.

"This was a very rough warning," Inderes analyst Mikael Rautanen said.

"I would have expected that by the second quarter the slide would have been stopped, but now it seems that the first quarter was horrible and the second quarter even worse."

Around Europe, UK's FTSE 100 index gained 0.7 percent, Germany's DAX index added 1 percent, and France's CAC 40 rose 0.6 percent.

The euro zone's blue chip Euro STOXX 50 index, which had slipped into 'oversold territory' on Tuesday, gained 0.85 percent to close at 2,341.36 points.

Despite Wednesday's bounce, the technical outlook for the benchmark remains grim after it broke below a positive trendline started in last September, sending a strong bearish signal.

"This correction is offering good arbitrage opportunities between geographical zones as well as between sectors," said Vincent Guenzi, chief investment officer at Cholet Dupont, which has 2.3 billion euros ($3 billion) under management.

"U.S., Japanese, North European and German equities are less risky, while stocks in emerging countries and in a number of European countries such as France and Italy are more vulnerable, although the offer more upside potential."

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