August 9, 2011 / 7:30 AM / 8 years ago

European shares rebound on Fed hopes

LONDON (Reuters) - European shares ended broadly higher on Tuesday, halting a 20 percent dive over 2-1/2 weeks as traders started rummaging around for bargains, with hopes the U.S. Federal Reserve will hint at a plan to revive its economy.

Investors will be looking for signs in the U.S. Federal Reserve policy meeting statement on Tuesday that the central bank might intervene to help stimulate the flagging economy and shore up its financial systems.

Most analysts, however, expect there will be no changes in its interest rate policy. The Fed will deliver a statement after the European market close at 1815 GMT.

The market made a late session recovery on the Fed hopes as investors bought up oversold stocks, with miners, carmakers and technology stocks featuring among the best performers.

The STOXX Europe 600 Basic Resources index .SXPP which has lost about 20.5 percent in just over two weeks, gained 3 percent.

Stand out gainers were Rio Tinto (RIO.L) and BHP Billiton BLT.L up 4.7 percent and 3.5 percent respectively.

“There has been a bounce from oversold conditions,” said Julian Chillingworth, CIO at Rathbones which has 16 billion pounds of assets under management.

“Short-term the market will hinge on what the Fed has to say, but we think the next few months will remain volatile and it is difficult to say whether now is the right time to buy.”

The STOXX Europe 600 Technology index .SX8P gained 3.2 percent and the STOXX Europe 600 Automobiles & Parts index .SXAP rose 2.8 percent following sharp falls.

Data from 2iQ Research showed that corporate insiders are buying shares in their companies, with the buy/sell ratio 6.59 this month, the highest since 2003 — a sign the market could be getting close to a floor.

Investors’ appetite for risk improved, with the Euro STOXX 50 volatility index .V2TX, Europe’s main fear gauge only up 2.4 percent, falling back from its highest level since late 2008.

The higher the volatility index, the lower investor appetite for risk.

The pan-European FTSEurofirst 300 .FTEU3 index of top shares closed up 1.2 percent at 947.90 points, with volume more than double its 90-day daily average after sinking by as much as 5 percent and hitting a two-year low earlier in the session.

Around 750.96 billion euros ($1,058) has been wiped off the market cap since July 22 and it has lost 20.5 percent from its 2011 high of mid-February putting the index in bear market territory.


Banking stocks also staged a comeback, with the STOXX Europe 600 Banks index .SX7P up 0.6 percent, but the index has lost 35.6 percent since mid February when worries grew over the global economies and euro zone peripheral debt crisis spreading.

Italian and Spanish bond yields headed back down toward 5 percent, with traders pointing to European Central Bank intervention to keep levels at a sustainable level to help stop the debt crisis spreading.

A Reuters poll of fund managers, however, has found that the European Central Bank will need to buy at least 100 billion euros ($142 billion) of Spanish and Italian bonds to shore up the stricken euro zone, and more than half of the 10 polled do not trust policymakers to spare them further losses.

“I think the overall outlook for equities from current levels is still challenged,” Dominic Rossi, chief investment officer at Fidelity International’s equity unit, which has 215 billion euros ($303 billion) in assets, said.

“(Equities) will remain challenged until governments take further action on fiscal consolidation, particularly in the United States.”

Additional reporting by Harro ten Wolde; Editing by Mike Nesbit

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