Reporters' Log

China recovery hopes lift European shares

By (Agencies)
Updated: 2009-03-05 13:48

European shares advanced on Wednesday as signs of economic recovery in China fuelled a rally in mining, construction and energy stocks.

The FTSEurofirst 300 index of top European shares closed 4 percent higher at 696.23 points, ending a three-session losing streak which saw the benchmark sink to a 12-year-low close on Tuesday.

Related readings:  Reports of China's fresh stimulus measures boost German stock markets  Stocks surge on stimulus rumor  Mainland stocks bring relief to HK shares

The DJ EuroSTOXX50 index climbed 4.2 percent and in the broader top-600 universe, rising stocks led decliners by five to one.

"We have several reasons to believe that stocks are bottoming," said Joost van Leenders, strategist at Fortis Investments.

"Markets have fallen into severely oversold territory and sentiment is extremely negative," he said.

"Secondly, while stocks have set new lows, credit markets have held well above their November lows. Thirdly, expectations about the economy and profits have become more bearish and are more in line with reality. This should limit the number of negative surprises," he added.

The basic resources sector index rose 12.6 percent, lifted by miners Rio Tinto, up 14 percent, and BHP Billiton, up 12.9 percent, on the back of the price of copper soaring nearly 7 percent to its highest in more than three months.

Steel maker ArcelorMittal gained 12.4 percent. Citigroup upgraded the stock to "hold" from "sell" and ICAP rated ArcelorMittal "buy", describing it as the "leader of the pack" and arguing it would gain from infrastructure spend in China.

The Chinese purchasing managers' index rose to 49.0 in February - the highest level in five months and the third consecutive rise.

"Metal prices are benefiting from the outlook that demand in China could recover soon," Commerzbank analyst Eugen Weinberg said.

"Premier Wen Jiabao may present new measures to stimulate the economy at the annual meeting of the National People's Congress starting tomorrow," he said.

China sovereign fund sees opportunities

News that China will increase spending in areas such as infrastructure lifted construction and building materials, up 8.3 percent on the sector index , led by Irish CRH, which shot up 16 percent to a three-week high.

Crude oil prices CLc1 rose 6 percent, supporting European energy stocks such as Total, up 8.9 percent, StatoilHydro, up 7.7 percent and Royal Dutch Shell up 6.3 percent.

Wang Jianxi, chief risk officer at China's $200 billion sovereign wealth fund, China Investment Corporation, saw investment opportunities in sectors such as basic necessities, resources and manufacturing.

While data out of China drew cheers, the latest economic figures from Europe and the United States provided scant solace.

The euro zone's purchasing managers' index for the service sector fell to a record low of 39.2 in February and the US Institute for Supply Management said its non-manufacturing index dropped to 41.6 in February.

The level of 50 separates expansion from contraction.

The US private sector cut 697,000 jobs in February, according to the ADP Employer Services report.

Deutsche Bank saw risks that the US economy could contract by as much as 10 percent in the first quarter.

Measured by the S&P 500 index, US equities were nevertheless up 2.3 percent as Europe's stock markets closed. Wall Street, too, fell to 12-year lows on Tuesday.

Across Europe on Wednesday, Britain's FTSE rose 3.8 percent, Germany's DAX added 5.4 percent and the French CAC 40 put on 4.7 percent.

"It doesn't feel like a turnaround, but I wouldn't write it off as just a dead-cat bounce either," said Neil Parker, strategist at Royal Bank of Scotland in London.

Chartists said European stock indexes could fall further.

"Looking for the bottom is a pointless exercise at the moment," said Nicole Elliott, a technical analyst with Mizuho Securities. "I don't see that we are anywhere near that - not even vaguely near that, neither in time nor in price."

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