* FTSEurofirst up 1.1 pct, posts highest finish in 3 weeks
* German DAX adds 1.6 pct, cheered by strong ZEW
* Subdued rally volumes highlight remaining risks
By Toni Vorobyova
LONDON, Feb 19 European shares rebounded on
Tuesday from three days of losses, with stronger-than-expected
German sentiment data prompting investors to return to sectors
like autos and technology.
The keenly watched German ZEW investor sentiment index
jumped to a three-year high, beating even the most optimistic
The data gave an early flavour of the kind of economic
improvement that strategists and investors are looking for to
power European equity market gains this year.
"Some investors are asking if the improvement in leading
indicators is sustainable, and we think it is," said Andreas
Huerkamp, equity strategist at Commerzbank.
"The start of recovery of leading indicators should continue
and then, in the second quarter, companies will start to become
more optimistic again ... That should trigger the next upward
move in the market."
A strong start to the week on Wall Street - which had
been closed on Monday for a public holiday - also increased
appetite for European equities, helping the market extend gains
in afternoon trade.
The pan-European FTSEurofirst 300 index closed up 1.1
percent at 1,171.73 points - more than recovering the previous
three session's losses to post its best finish in three weeks
The German DAX was one of the top-performing indexes in the
region, ending 1.6 percent higher at 7,752.45 points after
breaking above a minor cluster of technical resistances in the
7,700 to 7,710 area, including the 20- and 30-day moving
Huerkamp at Commerzbank forecast that the German benchmark
would finish the year at 8,500 points, continuing - alongside
the German economy - to benefit from its exposure to exporters,
who have been able to cash in on stronger growth abroad while
the euro zone stutters.
"We have quite a high weighting of global growth - autos,
chemicals and industrials have nearly a 50 percent weighting in
the DAX, while Euro STOXX 50 has only 25 percent in
these sectors ... So that's the big advantage of German equity
markets," he said.
Tuesday's earnings reports further highlighted the
importance of foreign earnings, with Danone, the
world's biggest yoghurt maker, reporting better-than-forecast
sales thanks to demand in the United States and the former
Soviet Union while Europe remained weak.
Danone shares jumped 5.9 percent, topping the FTSEurofirst
300 gainers board.
With the earnings season about a third of the way through,
some 41 percent of large and mid-cap companies in developed
Europe have undershot on full-year earnings expectations,
prompting analysts to cut 2013 views by 2.1 percent, according
Thomson Reuters StarMine data.
The lacklustre results threaten to make European equities
unappealing on price-to-earnings valuations.
"Europe is the weak link here ... now you are really in a
period when you need to see some growth coming through because
otherwise you are asking for a bigger and bigger multiple," said
Mike Ingram, market commentator at BGC Partners.
With other event risks also on the horizon - including this
weekend's Italian elections - some investors remained unwilling
to chase any rally, with Tuesday's volumes on EuroSTOXX 50 at
just 84 percent of their 30-day daily average.
"Our general move has been to take some profits ... put it
back into cash and roll some of the proceeds into more defensive
cyclicals and wait for that pullback to come," said Oliver
Wallin, investment director at Octopus Investments, adding that
any such correction could create a fresh buying opportunity.