European shares bounce as market bets on Cypriot crisis backstop

Wed Mar 20, 2013 7:21am EDT

* FTSEurofirst 300 up 0.3 pct, Euro STOXX 50 up 0.7 pct

* Traders say Cypriot crisis too small to derail rally

* Charts show trend remains up - Trading Central

By Francesco Canepa

LONDON, March 20 (Reuters) - European shares broke a three-day losing streak on Wednesday as investors bet a funding crisis in Cyprus would not spread to the rest of the euro zone and continued monetary support would sustain shares.

The European Central Bank allayed the risk of an immediate collapse of Cypriot banks by providing liquidity, albeit within certain limits, helping to backstop sentiment.

Cyprus was also pleading with Russia for help after the island's parliament rejected a levy on bank deposits that was one of the conditions for a 10 billion euro European Union bailout.

Traders said the limited size of Cyprus's cash requirements meant it was likely there could be a compromise with international lenders, averting a spillover effect to other euro zone countries.

"My advice right now, when you're intra-day trading, is 'buy the lows'," Steve Ruffley, market strategist at spreadbetting provider InterTrader.

"It's a dangerous game but right now I don't see the underlying fears in the market."

The pan-European FTSEurofirst 300 index was up 3.9 points, 0.3 percent, at 1,198.81 points at 1050 GMT after falling 13.8 points in the previous three days.

The index was less than 1 percent away from a 5-year high hit on Thursday and was on track to record its 10th consecutive monthly gain in March, in a rally largely fuelled by bond-buying programmes unveiled by the U.S. Federal Reserve and the European Central Bank.

The Fed was expected to signal plans to keep its stimulus programme open on Wednesday, partly in the light of renewed euro zone concerns, and traders cited continued monetary support as the main reason investors were still prepared to buy into shares.

"A lot of the investors that had missed out on the rally at the beginning of the year had been waiting for a little bit of a pullback," Mouhammed Choukeir, chief investment officer at Kleinwort Benson, said.

"We had (it) and that's one of the reasons why they're putting risk back on."

European banks rose 0.5 percent after being among the worst hit earlier this week.

COMPLACENCY

But Choukeir warned the market may be complacent in assuming that a rescue deal for Cyprus would be struck, adding a run on Cypriot banks was likely when they are allowed to reopen.

Ronnie Chopra, a market strategist at TradeNext, also cautioned that sentiment could turn quickly if news coming out of Cyprus suggested that the island was moving closer to a default.

He said if the euro fell back to a four-month low of around $1.28, that would be a short-term sell signal for shares.

The single currency rose 0.3 percent to $1.29 at 1050 GMT, helping the euro zone blue-chip Euro STOXX50 index, to which it is highly correlated, rise 0.7 percent to 2,688.78 points.

Nicolas Suiffet, a technical analyst at Trading Central in Paris, said this could be the right time to buy the index.

"The index has entered into a consolidation phase below (its recent peak) at 2,750 but remains supported by a rising trend line drawn from June's bottom and is now challenging the rising 20-day and 50-day simple moving averages," Suiffet said.

"The support at 2,660 (Tuesday's low) is likely to contain any downward move in price."

He added momentum indicators were also supportive and a rebound was likely from these levels, barring a break below 2,547, the lower end of a bullish gap opened in November.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.