(Corrects date of debt ceiling deadline)
* FTSEurofirst 300 up 1.2 pct
* European stock 'fear gauge' drops 13.6 pct
* Cyclical banks, autos lead market higher
* Kabel Deutschland slips on cautious outlook
By Tricia Wright
LONDON, Oct 10 European shares bounced back on
Thursday from their lowest close in more than a month as signs
of progress in Washington on ending the U.S. budget stalemate
whetted appetite for risk.
The FTSEurofirst 300 was up 1.2 percent at 1,239.58
by 1048 GMT, having ended the previous session at its lowest
since Sept. 5. Banks and autos - both up more
than 2 percent - led gains, as investors bought cyclical shares.
The Euro STOXX 50 Volatility index, or VSTOXX, also
did an about-turn, down 13.6 percent after hitting a five-week
high on Wednesday, signalling a sharp rise in demand for risk.
U.S. Republicans were looking into a short-term hike in the
government's borrowing authority to buy time for talks on
broader policy issues, a Republican leadership aide said on
Wednesday. If the debt ceiling is not raised by an October 17
deadline, the United States could default on some
House Republican leaders will visit the White House on
Thursday. U.S. President Barack Obama has said he would accept a
short-term ceiling increase as long as no strings were attached.
Despite the intense focus on the U.S. budget situation, the
FTSEurofirst 300 is only 2.7 percent off a five-year high hit in
September, with analysts saying that if investors really thought
a U.S. default were possible, it would have fallen more.
"My attitude all along has been that it may cause a little
bit of short-term uncertainty, but just keep your eye on the
longer-term because it will get sorted out in one way or
another," Societe Generale strategist Paul Jackson said.
"For me, growth is the most important thing at the moment,
because European equity markets are cheap and what they need in
order for the cheapness to result in decent returns is a little
bit of economic growth which will then produce a reasonable
amount of profit growth. So as long as U.S. economic momentum is
okay, European economic momentum will continue to improve."
The Stoxx Europe 600 trades on a 12-month forward
price/earnings ratio of 12.9 times, against the S&P 500
on 14.2 times, Thomson Reuters Datastream shows.
Jackson, who remains upbeat on European equity markets, said
he would back value over growth, or the cheapest companies
rather than those with growth potential. He likes miners
which, according to Datastream, trade on a 12-month forward
price/earnings ratio of 11.9 times.
Optimism about a U.S. breakthrough outweighed concerns about
corporate earnings, with Kabel Deutschland among the
latest European firms to issue a cautious outlook.
The cable firm shed 0.3 percent after it trimmed its revenue
forecast for the current fiscal year and said a takeover of the
company by Britain's Vodafone would hit net income.
"I think this is just the beginning of the tempering of
expectations for the full-year because the first half wasn't
good enough and the second-half growth isn't coming through as
fast as people hoped," BTIG strategist Nick Xanders said.
Profit warnings have impacted stocks this month and analysts
have cut 2013 earnings estimates for the STOXX 600 index by 3
percent since the start of the third quarter. (link.reuters.com/rar53v)
(Additional reporting by Atul Prakash; Editing by Catherine