September 2, 2013 / 4:36 PM / in 4 years

Robust factory data sparks European stock rally

* FTSEurofirst 300 up 1.8 pct, Euro STOXX 50 up 1.9 pct
    * Robust Chinese, euro zone data fans recovery hopes
    * Major investment banks upbeat on European stocks
    * Buy Italy, Germany; sell Switzerland, Nomura says

    By Blaise Robinson
    PARIS, Sept 2 (Reuters) - European shares surged on Monday
in a broad-based rally after Chinese and European factory data
showed the global economic recovery is on track.
    A batch of upbeat notes from top investment banks, including
a UBS upgrade on continental European equities to 'overweight'
from 'neutral', also lifted the market mood.
    The FTSEurofirst 300 index of top European shares
gained 1.8 percent to 1,217.01 points, its biggest one-day rise
in nearly two months. The euro zone's blue-chip Euro STOXX 50
 index added 1.9 percent to 2,774.09 points.
    Trading volumes were relatively low in the absence of U.S.
investors due to a public holiday.
    Mining shares featured among the top gainers, with Rio Tinto
 rising 4.2 percent and Anglo American up 3.9
percent after China's factory activity expanded at the fastest
pace in more than a year last month, with a jump in new orders.
    Bullish data also came from Europe, with British
manufacturing accelerating again in August while euro zone
factory activity expanded at its fastest pace in over two years.
    "Things are finally moving in Europe. Even though economic
growth is partially driven by rising public spending, it's
creating the conditions for a pickup in corporate investment,"
said Patrick Legland, head of research at Societe Generale.
    "We're positive on European equities, and we think that the
improvement in the region's economic momentum has not really
been priced in by investors yet."
    Recent data from Societe Generale showed that it would still
take $100 billion of net inflows into European equities to make
up for the sharp outflows seen since 2007. 
    Around Europe, UK's FTSE 100 index climbed 1.5
percent, Germany's DAX index rose 1.7 percent, and
France's CAC 40 added 1.8 percent.
    UK telecom firm Vodafone gained 3.4 percent after
announcing talks with Verizon to sell its 45 percent
stake in the Verizon Wireless joint venture. The $130 billion
deal was agreed after the market close. 
    The talks triggered a sharp rally in the telecom sector,
with Telecom Italia surging 3.9 percent on speculation
it could be the next to join the merger wave.
    Bullish notes from JPMorgan, Morgan Stanley, UBS and Nomura
also lent support to the market. In their upgrade, UBS
strategists cited regional data that "continues to surprise on
the upside" and the fact that "the fiscal drag is dissipating."
    For JPMorgan strategists, investors should "keep adding to
Europe", saying the key driver is still the activity momentum,
while Morgan Stanley recommended buying "European exposure".
    Nomura favoured shares of domestic-oriented companies, with
a 'buy' recommendation on German and Italian shares and a 'sell'
recommendation on Swiss equities.
    "Italy is the clear value proposition, and ranks cheapest of
the major country indices on price/book and enterprise value to
capital employed," Nomura strategists wrote.
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