Europe shares bounce back as fears of Ukraine escalation ease

Mon Aug 11, 2014 4:42am EDT

* FTSEurofirst 300 up 1.1 pct, Euro STOXX 50 up 1.2 pct

* Rebound seen as technical after correction

* Banco Popolare up 8.1 pct after forecast-beating results

By Blaise Robinson

PARIS, Aug 11 (Reuters) - European shares rose in early trade on Monday, bouncing back from a sharp two-week slide and tracking a rally on Wall Street, after investors deemed Moscow was not about to send troops into Ukraine - a move which would intensify sanctions.

Late on Friday, Russia's Defence Ministry said it had ended military exercises in southern Russia which the United States had criticised as a "provocative" step, sparking a sharp rally on Wall Street.

Germany's DAX outperformed on Monday, up 1.4 percent, with Daimler up 2.2 percent and Adidas up 1.2 percent. German companies are seen as the most vulnerable to tensions between the West and Russia because of the strong economic links between the two nations.

The situation on the ground remains uncertain, though, meaning any relief rally could be fragile.

A Ukrainian military spokesman said on Monday government forces were preparing to recapture the city of Donetsk from pro-Russian separatist rebels, while at the weekend U.S. President Barack Obama and German Chancellor Angela Merkel agreed any unauthorized Russian intervention in Ukraine, even under purported 'humanitarian' auspices, would provoke "additional consequences."

"Fears over the conflict between Ukraine and Russia have receded for now, which helps the market recover some ground," said Arnaud Scarpaci, fund manager at Montaigne Capital, in Paris.

"The 10 percent correction in Europe has brought some nice buying opportunities, and the market was clearly oversold on Friday. But this is mostly a technical bounce which should last just a few days,"

At 0800 GMT, the FTSEurofirst 300 index of top European shares was up 1.1 percent at 1,320.08 points.

The benchmark index had lost as much as 7.4 percent since mid-June, with the euro zone's blue-chip Euro STOXX 50 index dropping 10 percent over the same period.

Technical charts showed both indexes had slipped into 'oversold territory', with their relative strength index (RSI) falling below 30.

Euro zone banking shares - recently hit by the bailout of Portugal's Banco Espirito Santo - featured among the top gainers on Monday, with Banco Popolare rising 8.3 percent after Italy's fourth biggest bank reported stronger-than-expected quarterly results.

Shares in Austria's Raiffeisen Bank International, which has a significant exposure to Russia, were up 3.6 percent.

Europe bourses in 2014: link.reuters.com/pap87v

Asset performance in 2014: link.reuters.com/gap87v

Today's European research round-up (Editing by Toby Chopra)