* FTSEurofirst 300 up 2.0 percent
* Spanish bond yields ease after bill sales
* Barclays leads London-listed banks on broker comment
By Tricia Wright
LONDON, April 17 (Reuters) – European shares rallied on
Tuesday, with banks leading gains, after a well-received Spanish
debt auction, an upbeat German economic sentiment reading and
positive U.S. corporate earnings releases boosted investor
sentiment.
The FTSEurofirst 300 index closed up 2.0 percent at
1,053.12 points, near the session peak and back at levels seen
before the Easter break.
Charts showed the index, in an encouraging sign, was finding
support above the 38.2 percent Fibonacci retracement level of
the rally from the low in November to the high in March, though
analysts said the market was still looking vulnerable.
“If you put a gun to my head I would be a seller at the
1,050 area (the low on March 7) and then I would be long above
1,056 (the low on March 29),” Phil Roberts, chief European
technical strategist at Barclays Capital, said.
Spanish bond yields, which have surged in recent days on
concerns about the country’s economy, eased back as Tuesday’s
better-than-expected bill sale brightened the mood.
However, a number of strategists reckoned the equity market
gains might prove short-lived, with Spain’s more challenging
longer-term debt auction later in the week seen as a bigger
indicator of investor sentiment.
“Certainly a majority of European equity markets are going
to struggle to make headway until the situation with regard to
the European debt crisis calms down and the growth outlook
becomes clearer,” Richard Jeffrey, chief investment officer at
Cazenove Capital Management, said.
“I think if required the ECB will intervene further … but
I think this will be a risk-off quarter whereas the first
quarter – the majority of it was risk-on.”
Nomura said that maintaining a bullish outlook for European
companies has been a tough challenge in the past few weeks, but
the gap between the risk premium and the level of volatility is
wide and could support a rally in equities.
It is “overweight” cyclicals and “underweight” defensive
sectors. Within cyclicals, it is adjusting its allocation more
in favour of resources at the expense of industrials. It is also
trimming its weighting in tech companies and adding to banks.
European banking stocks, pressured in the previous
two sessions, jumped 4.1 percent as U.S. peer Goldman Sachs
unveiled first-quarter profits which beat analyst
forecasts. That was the biggest one-day percentage gain for
European banking stocks since Jan. 19, the last time big U.S.
banks reported earnings.
Barclays, rising 4.6 percent, spearheaded the
London-listed banks’ advance after BofA Merrill Lynch said
earnings upgrades could be on the horizon for the lender.
“With euro zone fears hitting the shares recently, we think
the Q1 results could re-focus investors to the fundamental
attractions,” BofA Merrill Lynch said.
Reasonably positive comment from the International Monetary
Fund (IMF) in its latest World Economic Outlook, also proved
supportive for equities.
Global growth is slowly improving as the U.S. recovery gains
traction and dangers from Europe recede, but risks remain
elevated, the IMF said.
(Editing by Susan Fenton)