European shares stabilise after falls

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London - European shares rose on Wednesday, recovering some poise from the previous session's falls, with defence stocks firm after a budget deal in Washington which traders say removes a source of uncertainty over US military spending.

Aerospace and defence companies BAE Systems and EADS rose nearly 2 percent after US budget negotiators reached a provisional two-year deal to avoid another government shutdown.

But traders urged caution on the basis that investors were buying the shares more as a result of the news coming earlier than anticipated rather than it being unexpected, meaning it had already been baked into the price before Wednesday's gains.

“I think eventually we might just see the market just say okay, well actually this wasn't anything that we weren't expecting and therefore they'll pull back a bit,” Matt Basi, head of sales trading at CMC Markets, said.

European equities have been drifting lower on uncertainty over when the US Federal Reserve will scale back its stimulus, with robust US data having re-ignited speculation it could start the process before year-end.

The US budget deal offered some reassurance about the US economy, but was also seen as providing more room for the Fed to dial back its stimulus scheme sooner rather than later.

“I think if they do anything in December it's going to be of a trivial nature just to test the water and see whether markets can stand any sort of reduction,” CMC Markets' Basi said.

The FTSEurofirst was up 0.1 percent at 1,264.81 points by 13:51 SA time, having dropped 0.7 percent on Tuesday.

The index is some 4 percent below a five-year high of 1,316 hit in early November.

The euro zone's blue-chip Euro STOXX 50 index rose 0.3 percent at 2,970.33 points.

Royal Bank of Scotland shed 2.5 percent, the top faller on the FTSEurofirst 300, after its finance director, Nathan Bostock, resigned to join Spanish bank Santander.

But some analysts did not reckon on Bostock's departure having a hugely detrimental impact on the lender.

“It's an unhelpful disruption, because now Royal Bank have got to replace him ... I wouldn't necessarily say it's a disaster,” Gary Greenwood, analyst at Shore Capital Stockbrokers, said.

“I wouldn't necessarily read into it that he was desperate to get out of Royal Bank of Scotland ... it's more a case that actually, there's a better role that's become available.”

Charts painted a gloomy near-term picture for the wider market, with the Euro STOXX 50 having dropped some 4 percent in December, taking it below its 50-day moving average.

“I'm not sure that we've seen the bottom ... Last week's closing low, at 2,953, is now the key level and if that gives way I think we could see a retreat back to 2,900,” Bill McNamara, analyst at Charles Stanley, said. - Reuters

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