European shares hit 1-wk high in low-volume rally

Tue Nov 29, 2011 11:36pm IST

Related Topics

* FTSEurofirst 300 index closes 0.8 percent higher

* U.S. consumer confidence data, Italian auction help

* Volatility falls lower than anticipated despite rally

By Atul Prakash

LONDON, Nov 29 (Reuters) - European shares hit a one-week high after a low-volume rally extended into a third day on Tuesday, buoyed by positive U.S. consumer confidence data and hopes policymakers will make progress to contain the euro zone debt crisis at a meeting.

The U.S. data showed consumer confidence bounced back from a 2-1/2 year low in November as apprehension about job and income prospects in the world's largest economy eased, prompting investors to actively buy equities in late afternoon session.

The FTSEurofirst 300 index of top European shares finished up 0.8 percent at 947.89 points, the highest close since Nov. 18. Volumes were 75 percent of its 90-day daily average. The index is down 15 percent in 2011 on worries the debt crisis could spread to countries such as Italy and Spain.

The latest auction of Italian debt on Tuesday brought some relief to investors as it met strong demand, although the country's borrowing costs hit a euro lifetime high of nearly 8 percent, above levels at which Greece, Ireland and Portugal applied for international bailouts.

"The market is benefitting from the Italian auction that saw good bid-to-cover ratios, even if it was at considerably higher levels," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels. "Once again hope is up for some comprehensive solution for the problems of the euro zone."

"But all we have at the moment are rumours and promises. If these do not morph into something more concrete, markets may once again be very disappointed. European leaders have got another chance to get their act together."

In Brussels, Eurogroup ministers were expected to approve detailed plans to bolster their bailout fund to help prevent contagion in bond markets. Ministers said the International Monetary Fund may have to provide more help.

The European travel and leisure sector featured among the top gainers, with the sector index rising 1.7 percent and TUI Travel advancing 2.5 percent on expectations that financial troubles at its rival Thomas Cook will help TUI. Thomas Cook shares slumped 13 percent.

Across Europe, Britain's FTSE 100 index rose 0.5 percent, Germany's DAX advanced 1 percent and France's CAC-40 gained 0.5 percent.

VOLATILITY STILL HIGH

The euro STOXX volatility index fell just 0.8 percent, although investors were expecting a bigger decline after strong gains in the past sessions. A European derivatives trader said this indicated that investors remained nervous and avoided strong bets on the upside.

He said options volumes had fallen between 20 to 30 percent in the past four to six weeks and focus was on contracts having shorter maturities as people were not willing to take much risk ahead of the year end.

Ramin Nakisa, global cross-asset strategist at UBS, noted that the volatility index was hovering around 40 and was just refusing to come down.

"Recently it's been crazy, but I don't think we're going to see a massive fall-off in the near future until there's some sort of resolution to the events in Europe. The macro view in Europe is very negative and continually surprising on the downside, which is a good reason for volatility to stay high."

Investors stayed cautious as there were several factors on the fringes that could suddenly blow up. Business daily La Tribune said ratings agency Standard & Poor's would lower its outlook on France's AAA credit rating to negative within 10 days.

Such a move would hit the euro zone's ability to rescue heavily indebted countries. French Prime Minister Francois Fillon, however, dismissed the newspaper report as baseless.

Growth fears also remained in the background. The British government said the country's economy will stagnate until mid-2012 and could easily fall back into recession.

With the debt crisis raging, nearly two thirds of European equity funds suffered a net loss in assets in 2011 as investors withdrew money, adding to a trend that has seen the sector nearly halve since 2007, a report said on Tuesday. (Additional reporting by Simon Jessop; Editing by Jon Loades-Carter) ============================================================ For rolling updates on what is moving European shares please click on ============================================================ For pan-Europeanmarket data and news, click on codes in brackets: European Equities speed guide................... FTSEurofirst 300 index.............................. STOXX Europe index.................................. Top 10 STOXX sectors........................... Top 10 EUROSTOXX sectors...................... Top 10 Eurofirst 300 sectors................... Top 25 European pct gainers....................... Top 25 European pct losers........................

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