European shares gain as bargain hunters step in

FRANKFURT: European shares edged up on Monday, led by cyclical sectors as investors looked for bargains after Federal Reserve Chairman Ben Bernanke left room for more measures to stimulate the weak US economy.

However, trading volumes at only 8 to 19 percent of 90-day averages were a sign the recovery was not broad-based, market participants said.

Cyclical stocks, among the hardest hit in recent weeks, led a broad market uptick with autos and construction companies among the biggest gainers.

"The cyclicals are having a catch-up. If there's going to be a recession, cyclical stocks are the ones that get hit, so, (after the Bernanke speech), we're seeing risk going back into names that are exposed to the sharp end of the economy," a senior sales trader at a European investment bank said.

At 1027 GMT, the FTSEurofirst 300 index of top European shares was up 0.8 percent at 926.27 points. With London markets closed for a holiday trading volumes across Europe were thin.

Germany's DAX index was up 1.2 percent, with shares trading at 19 percent of their 90-day average by midday. France's CAC 40 was up 1.6 percent, Spain's IBEX up 1.9 percent and Italy's FTSE MIB was up 1.6 percent.

"Most investors are unwilling to buy since weeks. Nobody wants to be exposed. This recovery is only technically driven," said a Frankfurt-based trader.

"People have become rather risk averse with many preferring to stay on the sidelines until things are getting clearer," said Markus Huber, trader at ETX Capital.

With Monday's holiday in the UK and Labor Day next week in the United States investors are preparing for what may be a slow week, with markets looking for directions.

"Until things are getting clearer about the state of the economy, upside for the market should be limited," Huber added.

However low valuations were attracting some investors back into the markets. Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of nine, against a 10-year average of 13.3.

GREEK BANKS

Banks were in demand, with Greek banks topping the STOXX Europe 600 Banks , which was up 1.3 percent.

National Bank of Greece soared 29.9 percent on news its peers Eurobank and Alpha Bank were merging to better cope with the severe sovereign debt crisis and recession.

Trading in Eurobank and Alpha Bank was suspended.

Heavyweight banks Credit Suisse, Societe Generale and UBS and Julius Baer gained between 3.2 and 3.4 percent.

Investors took comments from Christine Lagarde, the new head of the IMF, in their stride. Lagarde called on global policymakers to pursue urgent action, including forcing European banks to bulk up their capital.

Analyst Christian Weber at UniCredit Bank agreed pressure was rising to try to find a solution to the eurozone sovereign debt issues.

"Risk premiums have weakened by more than 60 percent, almost twice as fast as in October 2008," he said, adding risk premiums would remain high and volatile as long as investors were not confident about a credible solution.

Copyright Reuters, 2011