European shares rebound on investor optimism over Ukraine

Mon Aug 11, 2014 6:26am EDT

* FTSEurofirst 300 rebounds by 1 pct

* Index had fallen 7 pct in last 2 weeks

* Banco Popolare surges after forecast-beating results

By Sudip Kar-Gupta

LONDON, Aug 11 (Reuters) - European shares rebounded on Monday from a two-week drop after investors concluded Russia would not send troops into Ukraine anytime soon.

Late on Friday, Russia's Defence Ministry said it had ended military exercises in southern Russia that the United States had called "provocative."

"The Ukraine situation appears to be stabilising. European shares took a big beating over the last couple of weeks, so we're seeing a relief rally," said Ion-Marc Valahu, a fund manager at Geneva-based firm Clairinvest.

The pan-European FTSEurofirst 300 index, which had fallen some 7 percent over the last two weeks, rose 1 percent to 1,319.26 points. The euro zone's blue-chip Euro STOXX 50 index also rose 1.1 percent to 3,038.73 points. Germany's DAX outperformed, rising 1.5 percent.

Worries about the impact of Western sanctions against Russia had pushed the DAX down by around 11 percent from a record high of 10,050.98 points in late June, since many top German companies have significant business ties to Russia.

RALLY COULD BE FRAGILE

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

Ukrainian forces were preparing to recapture the city of Donetsk from pro-Russian separatist rebels, a military spokesman said on Monday. This weekend, U.S. President Barack Obama and German Chancellor Angela Merkel agreed that any Russian intervention in Ukraine - even for 'humanitarian' reasons - would provoke `additional consequences.'

"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," said Arnaud Scarpaci, fund manager at Paris-based Montaigne Capital.

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

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

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

Today's European research round-up (Editing by Larry King)