UPDATE 1-Earnings help European shares rebound as ECB holds steady

Thu Feb 6, 2014 12:24pm EST

* FTSEurofirst 300 closes up 1.4 pct as Wall St gains

* Index had faltered after Draghi offers little new

* Alcatel-Lucent surges 9.2 percent after results

* Indexes rebound after hitting "oversold" levels

By Alistair Smout

LONDON, Feb 6 (Reuters) - European equities bounced back in good volume on Thursday after a two-week drop, with reassuring earnings reports boosting shares despite the European Central Bank dashing hopes of some immediate extra monetary easing.

The pan-European FTSEurofirst 300 closed near intraday highs, rallying with Wall Street despite a temporary setback after the ECB left interest rates on hold.

The index pared its gains during a press conference in which ECB President Mario Draghi revealed no specific measures to ease policy further, holding off on any action pending new economic forecasts next month.

However, the pullback was short-lived, with traders finding reasons to be hopeful that the central bank may introduce additional measures in March.

"Not many economists were predicting a change in policy, so it shouldn't come as much surprise, but in the run up to the meeting there had been a pick-up in speculation that he might do something," Alastair McCaig, analyst at IG, said.

"Disappointing that nothing was really said, but with inflation so low, it does feel that he has no more leeway, so unless that improves then actions will have to be taken next month."

Buying was supported by data from the fourth-quarter earnings season, which has gathered pace in Europe.

Alcatel-Lucent surged 9.2 percent in heavy volumes after the telecom gear maker posted forecast-beating gross margins and operating profit, prompting hedge fund short sellers to unwind negative bets on the stock.

According to data from Markit, about 9 percent of Alcatel's shares are out on loan, up from 6.3 percent in mid-December, making it the most shorted stock on France's CAC 40.

Short selling involves selling borrowed shares in the expectation of being able to buy them back more cheaply later.

AkzoNobel rose 6.5 percent, the second-biggest gainer on the FTSEurofirst 300 as the Dutch paints and chemicals firm reported higher-than-expected earnings and hoped to meet its 2015 targets.

Trading volumes of Alcatel-Lucent and AkzoNobel were 324 percent and 422 percent of their 90-day daily average, against 140 percent for the FTSEurofirst 300.

Charts show the euro zone's blue-chip Euro STOXX 50 index rebounded after its nine-day relative strength index (RSI) slipped to 26 in the previous session. A level below 30 is considered "oversold" and often attracts buyers.

The index was up 1.6 percent at 3,010.79 points at the close, while the pan-European FTSEurofirst 300 index rose 1.5 percent to 1,290.41 points after its RSI fell to 27 on Wednesday.

"It's very likely to see a short-term stabilisation in the market as we have seen an 'oversold' situation and the Euro STOXX 50 index is nearing some important support zones," Thorsten Grisse, technical strategist at Commerzbank, said.

"It does not mean that the recent consolidation process is over, but from a medium-term perspective, we are still in a fine bull market."

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