PARIS: European stocks rose on Wednesday, extending their timid rally to a third day as investors tiptoed into cyclical sectors after a dismal August, hoping this week's slew of US data will ease fears of another recession.
Bouygues' massive share buyback also boosted sentiment as investors were pleased to see a big conglomerate taking advantage of a the recent market rout while sending a positive signal about its outlook.
Shares in the telecom, media and construction group -- which said it will buy back nearly 12 percent of the company's capital at a 30 percent premium -- surged 13 percent in strong volume and sparked a rally in construction stocks.
France's Eiffage soared 4.8 percent, Ireland's CRH surged 3.5 percent and Spain's ACS added 2.5 percent.
At 1147 GMT, the FTSEurofirst 300 index of top European shares was up 1.4 percent at 953.49 points, on track to post a monthly loss of 12 percent, the index's worst monthly performance since the heat of the financial crisis in late 2008 and its worst August performance since 1998.
The index was rallying for the third consecutive session on Wednesday, but the rebound looked fragile as trading volumes were thin. By midday, the volume on the index represented about 30 percent of its 90-day average daily volume.
UNDERPERFORMING US STOCKS
"This month's performance has been very bad, on the back of a mix of fundamental elements coming in such a short span that the effect on the market was devastating," said Franklin Pichard, director at Barclays France.
"Political cacophony on both sides of the Atlantic, credit downgrades, doubts about banks' balance sheets, fears of a repeat of the credit crunch of 2008... coupled with a number of profit warnings. All this has prompted investors to cut their weighting on equities, in favour of cash," he said.
According to a Reuters poll published on Wednesday, European investors slashed equities and sharply raised cash holdings in August.
Around Europe, UK's FTSE 100 index was up 0.9 percent, Germany's DAX index up 1.3 percent, and France's CAC 40 up 1.5 percent, while the euro zone's blue chip Euro STOXX 50 index was up 1.3 percent, breaking above a key resistance level -- the 23.6 percent Fibonacci retracement of the recent slump.
A number of defensive shares were left behind, with Vodafone down 0.3 percent and Nestle down 0.1 percent, while banks gained ground, with Societe Generale up 2.4 percent.
The banking sector index was up 1 percent, struggling to convincingly rebound from a 2-1/2 year low hit last week following a 43 percent dive since mid-February.
"European stocks have been seriously underperforming US shares this year, with a risk premium linked to the region's debt trouble, but also as if a US recession had been priced in here but not on Wall Street," said Catherine Garrigues, senior equity portfolio manager and head of euroland equities at Allianz GI Investments Europe, which has 123 billion euros ($178 billion) under management.
This could underpin European stocks in the coming months, the fund manager said, but she warns it might not translate into broad-based gains.
"People have to get out of indexes, get out of exchanged-traded funds and passive investing styles. It's not about sectors, it's about the fundamentals: look for low-debt, high pricing-power companies, with good exposure to emerging growth, etc. We have years of stock picking ahead of us."
Investors awaited a raft of key US macro data this week, including the monthly jobs data on Friday.
Copyright Reuters, 2011
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