LONDON: Euro zone shares steadied on Wednesday, outpacing their British and Swiss counterparts as successful debt sales in Rome and Madrid boosted banks and stocks on the region's periphery.
Spanish and Italian stocks rallied after the sales added to signs of improved sentiment towards the euro zone's struggling southern economies.
Italy's FTSE MIB index and Spain's Ibex rose 1 percent and 1.3 percent respectively, outperforming Switzerland's SMI and Britain's FTSE 100 indexes, down 0.9 percent and 0.4 percent.
Euro zone banks, which are exposed to the region's sovereign debt through their bond holdings and rely on economic growth for their core business, rose 1.3 percent, led by Spain's Caixabank and Portugal's Banco Espirito Santo .
Italian and Spanish shares have outpaced their European peers since July as better economic data lured investors to stocks trading at lower valuation multiples, including banks, telecoms and utility stocks in the periphery.
The recent rally, however, has made those valuations start to look full, especially in Spain.
"The outperformance of value stocks is a long-term theme but there is scope for some short-term profit taking into the end of the year," said Claudia Panseri, global equity strategist at Societe Generale Private Banking.
"The fact that the euro zone has climbed out of recession is in the prices by now, and we're waiting to see an expansion in earnings."
Panseri has a 3,000-point year-end target for the euro zone Euro STOXX 50 index, which closed up 0.1 percent at 2,904.73 points.
Analysts polled by Reuters expect the Euro STOXX 50 to hit 3,020 by the end of the year and rise further to 3,125 and 3,253 by the middle and the end of 2014, respectively.
The pan-European FTSEurofirst 300 index fell 0.5 percent to 1,224.71 points, a fresh one-month low, weighed down by defensive stocks such as Swiss pharma group Roche and food group Nestle.
Lack of progress in resolving the US fiscal deadlock kept sentiment subdued and boosted the Euro STOXX volatility index , which gauges the cost of insuring against future market swings using options, to a one-month high.
President Barack Obama said he would only negotiate with Republicans once they agreed to re-open a government in its second week of shutdown, and raise the debt ceiling with no conditions.
In this context, investors welcomed news that Janet Yellen will take over as Federal Reserve chairman from next year, which bolstered expectations that the US central bank will tread carefully in unwinding equity-friendly stimulus.
"It's the Yellen effect that has brought financial market stabilisation," said Oliver Roth, head trader at Close Brothers Seydler.
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