China stimulus talk helps European shares to rebound

Tue Mar 25, 2014 7:45am EDT

* FTSEurofirst 300 index rises 1 percent

* Miners gain most on China stimulus talk

* Kingfisher jumps on plan to return capital

By Atul Prakash

LONDON, March 25 (Reuters) - European stocks bounced back on Tuesday, led by miners on speculation that recent disappointing Chinese data might prompt Beijing to launch fresh stimulus to maintain the pace of economic growth.

Encouraging updates from companies such as Europe's largest home improvements retailer Kingfisher and British budget airline easyJet also bolstered market sentiment.

The broader stock market was boosted by a 1.7 percent jump in the European basic resources index. Analysts said that any monetary easing by China, the world's biggest metals consumer, had potential to support metal prices and improve mining sector profits.

"The recent flow of weaker-than-expected data from China has increased the probability of a policy response. Such a move will calm fears regarding a sharper slowdown in the economy and that will have a positive read-across for global growth and the sectors exposed to China," Robert Parkes, equity strategist at HSBC Securities, said.

"Mining is a sector that is relatively sensitive to developments in the Chinese economy."

Miners helped the FTSEurofirst 300 index of top European shares to gain 1 percent to 1,305.84 points by 1118 GMT, recouping the previous session's entire losses.

Global diversified miners Rio Tinto and BHP Billiton rose 2.6 percent and 1.5 percent respectively, while Anglo American advanced 2.8 percent, mirroring a price rally in major industrial metals on stimulus speculation.

Recent data has put pressure on China to support the economy to meet its growth target of 7.5 percent. A survey on Monday showed China's manufacturing sector shrank again in March, following weaker-than-expected industrial output figures for January and February and a fall in exports.

Concerns over a possible economic slowdown in the world's second-biggest economy and the impact of an eventual rise in U.S. interest rates prompted strategists at Credit Suisse to halve the size of their "overweight" position on global equities.

Gerhard Schwarz, head of equity strategy at Baader Bank, said the stimulus talk could help markets to recover, while any relaxation on the monetary front could mean some relief for commodities and eventually help resource-related stocks.

"We saw cyclical sectors underperforming over the last couple of weeks and any kind of stimulus will certainly help the cyclical sectors more."

Though shares rose, investors were still cautious as tension between Russia and the West persisted and the negative impact of the conflict started to be reflected in economic surveys.

Data showed German business morale fell for the first time in five months in March as firms in Europe's largest economy worried about the effects of the Ukraine crisis.

However, BNP Paribas said the recent geopolitical tensions, which have slowed the strong momentum in investment inflows into European stocks, were a temporary setback and the fundamentals were still intact for further brisk inflows to the region.

Among other sharp movers, Kingfisher jumped 6.7 percent, the top FTSEurofirst gainer, after saying it would return about 200 million British pounds to shareholders this year. easyJet was up 4.9 percent after upgrading its first-half outlook by 25 percent.

Europe bourses in 2014: link.reuters.com/pad95v

Asset performance in 2014: link.reuters.com/rav46v

Today's European research round-up (Additional reporting by Sudip Kar-Gupta in London and Blaise Robinson in Paris; Editing by Susan Fenton)