Europe shares rebound

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European shares rose on Thursday as investors snapped up bargains after steep falls the previous day, although regional data showing a deterioration in economic activity and concerns about Greece exiting the euro left stocks vulnerable.

Sectors hammered in Wednesday's sell-off were among the top gainers, with energy, banking and utlities rising 1.1 to 2.2 percent. But charts suggested that the market was unlikely to hold gains and could come under renewed selling pressure.

At 13:12 SA time, the FTSEurofirst 300 index of top European shares was up 1.1 percent at 982.25 points after rising to a high of 985.01 earlier in the session. The index slipped 2.2 percent on Wednesday.

“We are just being buffeted around by despair and hope of the possible solution to the euro zone crisis. Risk appetite is still at a very low level, but there is plenty of value. I will not be surprised if investors start to hunt for bargains,” said Robert Parkes, equity strategist at HSBC.

“There is still a lot of uncertainty related to the outcome in Europe. If you are pretty risk averse, you will be looking for a balanced position at this point of time, rather than an outright defensive position.”

European Union leaders, advised by officials to prepare contingency plans in case Greece decides to quit the euro, shed no new light on Wednesday on how they intend to tackle the debt crisis, giving the market little to trade on.

“The market remains vulnerable as we still don't have any concrete proposal on the table to resolve the debt crisis. People are looking for signs that politicians are going to act, but that feeling did not emerge from yesterday's EU meeting,” said Koen De Leus, strategist at KBC Securities, in Brussels.

“Long-term investors are absent and the market is currently being driven by traders who have a short-term investment horizon and are looking for bargains.”

TECHNICAL PICTURE

The euro zone's blue chip Euro STOXX 50 index was up 1 percent at 2,156.12 points, a day after its 9-day relative strength index (RSI) fell to 32. Levels below 30 are generally seen as oversold, prompting some investors to return to the market.

“The problem is that without any positive news flow, the rallies lack conviction and soon peter out, and that's likely to happen this time as well,” said Bill McNamara, technical analyst at Charles Stanley.

“The area of possible support is likely to be found at around 2,065, which was the trading low in November, although I wouldn't be surprised to see the market test its September lows (of 2,025 points) before this volatile phase has played out.”

Gloomy economic numbers added to investors' concerns.

European shares had turned negative after weak German and French economic data, but they later rebounded.

German business sentiment dropped for the first time in seven months in May, suggesting Europe's top economy is no longer immune to the impact of the region's deepening crisis.

French and German manufacturing activity has also shrunk this month at the fastest pace in three years, data showed.

“The risk for a contraction of the European economy for the second quarter has clearly increased. In a perverse way, weak figures may be good for markets as it increases the likelihood of more central bank action like a rate cut,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

Some other indicators also painted a negative picture.

Thomson Reuters Datastream showed the outlook for euro zone companies' earnings was starting to deteriorate again, reversing an improving trend that had started in late 2011, with the region on the edge of recession.

Goldman Sachs said in a note that European equity markets were likely to remain volatile for some time and that it was sticking to a cautious stance on risk assets. - Reuters