* FTSEurofirst 300 index finishes 0.2 pct higher
* Boehner comment on “fiscal cliff” improves sentiment
* Euro STOXX 50 index faces resistance at 2,563
By Atul Prakash
LONDON, Nov 28 (Reuters) - European shares recovered to close slightly higher on Wednesday, hauled up with U.S. stocks on signs that lawmakers in the United States will be able to avert the “fiscal cliff” that threatens its economy.
The FTSEurofirst 300 index closed 0.2 percent higher at 1,109.27 points, after falling to a low of 1,100.79 earlier in the session, supported by a 0.5 percent gain in chemical shares. The euro zone’s blue chip Euro STOXX 50 index was up 0.1 percent at 2,546.84.
“Just 24 hours ago there was a feeling that Democrats and Republicans were a lot further apart. Now it seems they are really willing to cut a deal on (the fiscal cliff) and get it right for the United States,” said Angus Campbell, head of market analysis at Capital Spreads. “There is a degree of optimism that a deal will be reached before the year end.”
Talks on a budget deal, without which $600 billion of large tax hikes and spending cuts will come into effect in January, have been moving markets for weeks.
U.S. stocks sharply pared losses on Wednesday after U.S. House Speaker John Boehner said he was optimistic that a deal could reached, just a day after U.S. Senate Majority Leader Harry Reid reported disappointing progress on the issue.
“Boehner’s comments should go some way towards mollifying the market’s fears, although there’s clearly a lot of work still to be done,” said Jeremy Batstone-Carr, head of private client research at Charles Stanley.
U.S. President Barack Obama said he hoped he and Congress could reach agreement to avoid the looming fiscal crisis and shrink the budget deficit before Christmas.
Analysts said that in the near term, the European stock market was expected to be driven by news headlines related to the fiscal cliff and debt problems in the euro zone.
“If you think that the market is going to be volatile, then if you have got some good profits you might just take it and hold cash,” said David Scott, senior stock broker at Redmayne-Bentley.
The FTSEurofirst 300 index has gained nearly 11 percent this year, while the Euro STOXX 50 index has climbed 10 percent.
“Tuesday’s high of 2,563 is the immediate resistance for the Euro STOXX 50. If we manage to convincingly break that, then the risk would be to advance towards its November high of 2,600,” Gerry Celaya, chairman of Redtower Asset Management, said.
“In the very short term, the index could find support at around 2,500, but a failure to hold the level could push the index towards this month’s low of 2,427.”
Analysts said the United States was likely to play a crucial part in the global recovery story in the longer term, but that European equities could lag behind.
“We are convinced that the U.S. will be one of the main drivers of growth in 2013 despite the looming ‘fiscal cliff’,” Marino Valensise, chief investment officer at Baring Asset Management, said in a note.
“We expect that the ‘fiscal cliff’ is resolved relatively easily and quickly in 2013, with little permanent damage to consumer or business sentiment.”
Citi expected European stocks to move against consensus, however, and underperform U.S. peers. Its analysts saw the STOXX 600 index ending next year at 285 points, only 5 percent above current levels, while forecasting the U.S. S&P 500 would gain more than 15 percent to reach 1,615.
Citi said the U.S. fiscal row could be resolved and the economy could see an accelerated growth by the second half of 2013. On the other hand, it still expected Greece to exit the euro zone in 12-18 months and saw sovereign debt restructuring for Greece, Ireland, Italy, Portugal and Spain in 2013-17.
Cyclical sectors, which generally suffer more during difficult economic conditions, lost ground on Wednesday. The STOXX Europe 600 basic resources index fell 0.8 percent, while European banking shares dropped 0.4 percent.
Norwegian bank DNB fell 5.5 percent as investors anticipated restraints to the bank’s ability to pay dividends in case tougher capital regulation were imposed along the lines suggested by the country’s central bank.