* FTSEurofirst up 0.2 percent
* Spanish stocks bounce as government rescues Bankia
* Earnings lift Aegon and Repsol
* Surprise profit fall costs Skanska
By David Brett
LONDON, May 10 (Reuters) - European shares made a choppy start early on Thursday, having hit four-month lows in the previous session, as investors weighed up the attractiveness of cheap equities against overhanging European debt and global growth problems.
The FTSEurofirst 300 index was down 1.3 points, or 0.1 percent at 1,013.14 by 0815 GMT, having closed at its lowest level since Jan. 9 on Wednesday as growing uncertainty in Greece and concerns over the Spanish financial system hit markets.
The FTSEurofirst found support in the previous session around the 1,011 level — the 61.8 percent Fibonacci retracement of the rally that the European Central Bank launched in mid-December with its flood of cheap loans. Had the index closed significantly below that level, it index would have given a bearish signal.
European equities continue to trade on attractive valuations with a price-to-earnings of around 11 times, compared with a historical average of more than 13 times. And stocks have a dividend yield of above 4 percent, which compares favourably to safer government bonds which yield around 2 percent.
“On an historical basis stocks remain cheap, certainly relative to other asset classes, but governments in Europe must restore investors’ faith in the their ability to contain the debt crisis and guide the euro zone back onto a stable footing, if equities are to recover long-term,” Jimmy Yates, head of equities at CMC Markets, said.
Spain’s beaten-down IBEX rebounded furthest early on, up 1.6 percent. The bank-heavy index rallied after the country’s government stepped in to take over Bankia, Spain’s fourth biggest lender, in an attempt to dispel concerns over its ability to clean up the financial sector four years after a property market crash.
Brussel’s-listed KBC Groep, a barometer for market sentiment towards developments in the euro zone, rose 11.5 percent.
Investors will also keep an eye on Greece as Greek Socialist leader Evangelos Venizelos makes a last-ditch attempt to form a government on Thursday and avoid a new election after voters rejected a bailout deal and left the country’s commitment to the euro zone in doubt.
European governments kept the country solvent for the moment by agreeing to make a 4.2 billion euros ($5.4 billion) payment on Thursday from the region’s bailout fund to enable Athens to meet short-term bond redemptions.
Robust corporate earnings in the face of bleak macro economic conditions helped boost investors’ appetite for European-listed companies.
Dutch life insurer Aegon, Denmark’s Danske Bank , Spanish oil major Repsol, the world’s largest steelmaker ArcelorMittal and Europe’s largest computer consultancy, Capgemini were all among the top gainers after reporting results.
It’s been a bullish start to the earnings season for European companies. Of those that have reported so far this quarter, 60 percent of companies have either met or beaten expectations, compared with 71 percent in the United States, according to Thomson Reuters Starmine data.
Reflecting investors’ desire to take a punt on beaten down stocks, Eurasian Natural Resources rose 2.2 percent despite warning revenue decreased “significantly” in the first quarter, hit by a drop in prices for the commodities it sells, especially iron ore, and weaker production volumes, after its shares hit a three-year low in the previous session.
Basic resource stocks are facing further pressure on their outlooks as China, the world’s largest consumer of natural resources, reported its headline growth in imports unexpectedly stalled in April and exports were weaker-than-expected, raising doubts about the strength of the rebound in the world’s second-biggest economy.
A London-based fund manager, however, was quick to remind investors that growth was still high enough in Asia to support earnings in the longer term, saying regional growth is much stronger than 10 years ago and economies are much bigger now.
Sticking with earnings, investors continued to punish companies that surprise on the downside with Skanska, the Nordic region’s biggest builder, down 5.7 percent percent after it posted a surprise fall in first-quarter pretax profit.
UK-listed telecoms company BT and credit information firm Experian also fell after respective updates.