European shares post best day in 7 months on rate cut bets
* FTSEurofirst 300 index closes 2.4 pct higher
* Strong earnings, rate cut hopes boost market
* Financials, techs, autos gain sharply
* ARM Holdings surges 11.9 pct after results
By Atul Prakash
LONDON, April 23 (Reuters) - Europe's main share index posted its biggest one-day gain in more than seven months on Tuesday, buoyed by strong earnings and after a downbeat German survey raised expectations of a rate cut in the euro zone.
The FTSEurofirst 300 ended up 2.4 percent at 1,183.03 points, its highest close since April 11 and the biggest daily gain since early August. The index was also helped by technical buying after it breached key resistance levels.
In the past few sessions, it has recouped more than half of its recent selloff.
Investors rushed to buy equities after a survey showed Germany's private sector shrank for the first time in five months in April, reinforcing the case for the European Central Bank (ECB) to cut interest rates at its policy meeting on May 2.
"The business cycle indicators are still not recovering strongly and could be a signal that we are going to see some additional stimulus coming through from the ECB," Robert Parkes, equity strategist at HSBC Securities, said.
"European equities are still undervalued against their historical averages, limiting their downside risks," he said, adding that financials remained his preferred sector.
According to Thomson Reuters Datastream, the broader STOXX Europe 600 index is trading at 11.8 times its one-year forward earnings, against a 10-year average of 12.2.
Financial stocks was the best-performing sector, with the STOXX Europe 600 Insurance index rising 3.7 percent and European banks advancing 3.3 percent. Auto shares , another cyclical sector, jumped 3.5 percent, while technology stocks climbed 2.7 percent.
Results and updates from tech firms set the ground for a rally in the morning, with ARM Holdings surging 11.9 percent after beating profit forecasts.
STMicroelectronics rose 8.8 percent after saying signs of recovery and new products should drive a pickup in sales in the second half, while Finnish lift and escalator maker Kone gained 9.5 percent after raising its outlook.
According to Thomson Reuters StarMine, out of the 8 percent of STOXX Europe 600 companies that have reported results so far, 55 percent have met or beaten expectations.
Buying accelerated later in the session on positive U.S. new homes sales and chain store data, and after major share indexes, including the euro zone's blue chip Euro STOXX 50, broke above their 50-day moving averages, marking a 50 percent retracement of their recent fall.
The index rose 3.1 percent to 2,662.88 points to also close above its 100-day moving average of 2,653.81. Charts suggested some further upside in the near term.
"The index's short-term outlook has clearly improved with today's movements. We have some trading opportunities here," Petra von Kerssenbrock, technical analyst at Commerzbank, said.
The index had the potential to rise to the 2,680-2,700 area in the coming days, he said.
However, some technical analysts remained cautious.
"The FTSE 100, the Euro STOXX 50 and the CAC are bouncing from key support, but apart from any short-term rebound we continue to see more weakness into May," Michael Riesner, head of equity technical analysis at UBS, said.
"So we think it is still too early to buy."
France's benchmark CAC-40 index rose 3.6 percent, outperforming in Europe after a survey of purchasing managers showed that French business activity, while still weak, wasn't as bad as expected.
Among other sharp movers, Richemont, owner of Cartier and other luxury brands, jumped 8.3 percent after saying full-year profit would beat expectations, easing fears about a sharp slowdown in demand for luxury goods in Asia.
Analysts said the longer-term outlook for European stocks remained positive despite recent weaknesses.
"Our view is that we would end the year higher. We have detected a change of mindset amongst investors this year. Whilst they remain generally cautious, they appear to be looking for opportunities to buy rather than to sell," Parkes said.
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