German shares lead Europe higher after factory data

(ADVISORY- Reuters plans to replace intra-day European and UK stock market reports with a Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets for site in development. See the bottom of the report for more details)

* Euro STOXX 50 index up 0.4 pct

* German share outperform after factory data

* Italian shares fall, banks under pressure

By Atul Prakash

LONDON, May 2 (Reuters) - European equities bounced back on Monday after sharp declines in the previous session, with German shares outperforming the broader market after a positive manufacturing survey report.

However, trading volumes were expected to be thin as the UK market was closed for a public holiday.

The euro zone’s blue-chip Euro STOXX 50 index was up 0.4 percent and Frances CAC gained 0.4 percent. Germany’s DAX advanced 1 percent after a survey showing German factory activity rose to a three-month high in April, buoyed by rising demand at home and abroad.

“German equities are reacting positively after the factory activity data. It’s a pleasant surprise, but I still think that we are not out of the woods yet,” Koen De Leus, senior economist at KBC in Brussels, said.

“We don’t see a big acceleration in German growth trends because an appreciation in the euro against the dollar and a recent recovery in oil prices will continue to be major headwinds.”

Italy’s FTSE MIB index, however, fell 0.4 percent as traders said new measures the government approved on Friday to speed up recovery of unpaid loans would fail to have a big impact in the short-term.

“More was expected more from the decree,” a Milan-based trader said.

The government decree aims at helping Italian banks tackle a bad loan pile that runs at nearly a fifth of overall corporate loans but traders said the market was disappointed by the fact that the changes introduced only applied to new loans.

Also weighing on banking stocks was the outcome of an initial public offering by regional bank Banca Popolare di Vicenza that ended on Friday, with investors taking up only 7.7 percent of the 1.5 billion euro worth of shares on sale.

Shares in UBI Banca, BMPS, Unicredit , Banco Popolare and Popolare di Milano down 2.9 to 4.1 percent.

On Friday, the pan-European FTSEurofirst 300 fell 2.2 percent in the previous session, with the index still down more than 6 percent so far this year.

Investors will keep an eye on earnings for hints about the market’s near-term direction. The reporting season is gathering pace, with 65 firms in the STOXX 600 index, including Lloyds, Royal Bank of Scotland, Shell and Continental, reporting their results this week.

According to Thomson Reuters StarMine, 43 percent companies in Europe have reported results, of which 62 percent have met or beaten earnings forecasts, while the rest have missed.

On the downside, BASF fell 2.7 percent after its shares traded without the attraction of latest dividend payouts.

Today’s European research round-up

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Mike Dolan, Markets Editor EMEA.