London - European shares rose on Tuesday to extend the previous session's rally, with Germany's DAX index outperforming, driven by what traders saw as an easing of tension in the Ukraine crisis.
European stock markets had rebounded sharply on Monday after Russia's Foreign Ministry said some progress had been achieved during talks between Russia, Germany, France and Ukraine over the conflict.
Although the situation remained fragile - with Ukraine government forces reporting new advances against pro-Russian separatists - traders took consolation from the fact that the situation had not worsened materially, in their eyes.
“The Ukraine situation is dragging on, which is a bit of a concern, but on an underlying basis, the stock markets look OK. People still want to be in the markets rather than out,” said Terry Torrison, managing director at McLaren Securities.
The pan-European FTSEurofirst 300 index, which is still down by nearly 4 percent since mid-June, rose 0.4 percent to 1,344.43 points.
The DAX outperformed to rise 1 percent to 9,333.54 points.
The DAX has risen nearly 4 percent in the past 10 days but is still down by some 7 percent from its record high of 10,050.98 points set in late June.
Torrison said the DAX could rise to 9,500 points by the end of August, if the Ukraine situation did not worsen.
The German equity market's recent underperformance has dragged the average price-to-earnings ratio of local shares down to a level not seen since October 2013, according to data from Thomson Reuters Datastream.
The MSCI Germany index trades at 12 times expected earnings while the MSCI Europe trades at 13.6 times earnings, making Germany's P/E ratio relative to Europe the cheapest in nearly 10 years.
By comparison, Wall Street's S&P 500 trades at about 15 times expected earnings.
Shares in Moller-Maersk surged 4.6 percent after the Danish shipping and oil group posted better-than-expected results, raised its full-year profit outlook and disclosed ed a $1 billion share buyback plan.
Shares in Lindt & Spruengli also rose 1.2 percent as the Swiss chocolate maker confirmed its full-year targets after profit rose 14 percent in the first half.
As Europe's earnings season draws to an end, about 52 percent of companies listed on the pan-European STOXX 600 index companies have met or beaten earnings forecasts, according to Thomson Reuters StarMine data.
“There's been a strong outperformance of US stocks versus Europe in the past few weeks, so there's scope for a little rebound in Europe in the short term. Good earnings from Lindt and Moller-Maersk today are helping in that direction,” said Arnaud Scarpaci, a fund manager at Montaigne Capital. - Reuters