London - European shares edged up on Thursday, recovering from a three-week low hit in the previous session as bargain hunters picked up beaten-down stocks on the last trading day of the quarter.
But worries over the impact of a bailout of Cyprus, including fears of a run on the island's banks when they reopen at 12:00 SA time, were expected to cap gains and weigh on equity markets in the second quarter.
The pan-European FTSEurofirst 300 index rose 0.3 percent to 1,187.43 points, and the euro zone's blue-chip Euro STOXX 50 index also advanced 0.3 percent to 2,621.34
Anxiety over Cyprus, whose 10 billion euro ($12.8 billion)bailout package has driven it to impose losses on wealthy bank depositors, has put a brake on a rally on equity markets since the start of 2013.
Many investors expect the market to drop back in the coming quarter, but then resume an upwards trajectory as 2013 progresses, given expectations of a gradual recovery in the global economy.
Equity markets have also been supported by pledges of liquidity from the European Central Bank (ECB) and US Federal Reserve to fight off the effects of the euro zone's debt crisis.
“I still think that the markets will finish up in 2013. There's still a lot of quality blue-chip names out there which bargain-hunters are looking to buy on the dip,” said Toby Campbell-Gray, head of trading at Tavira Securities.
Prospects for the second quarter looked more uncertain, since investors might look to book gains on the first quarter's rally due to uncertainty over how the Cypriot situation might unfold, and whether it might impact other struggling states such as Spain and Italy.
“The Cyprus situation is an enormous howler by the European Union. I think the market will be sideways to down in the second quarter. We could see a five to 10 percent pullback,” he said.
D.E. MASTER BLENDERS SURGES
The FTSEurofirst 300 index has risen 5 percent since the start of 2013, building on a sharp rally in the second half of 2012 after the ECB pledged measures to protect the euro and sovereign issuers from the region's debt crisis.
Equity markets have also been supported on expectations that mergers and acquisition activity may pick up, and Dutch coffee and tea company D.E. Master Blenders topped the FTSEurofirst 300 with a 28 percent surge on Thursday after announcing it was in takeover talks.
A Reuters poll this month showed that the Euro STOXX 50 was seen rising to 2,935 points by the end of 2013, while the broader STOXX Europe 600 index, which was up 0.2 percent at 293.10 points, was seen ending the year at 317 points.
Banc de Binary senior broker David Knight said if the Cyprus situation worsened, for example by leading to major civil unrest, there could be a major fall on equity markets.
“I wouldn't like to put a number on what the freefall could be, but it could be a substantial one,” he said. - Reuters