Gains in financial shares led European stock markets higher on Tuesday, and persistent speculation Spain may be edging closer to asking for a sovereign bailout also lifted equities. The FTSEurofirst 300 index closed up 1.4 percent at 1,113.14 points. The euro zone Euro STOXX 50 index also rose 2.5 percent to 2,547.90 points, marking its best intraday-gain since a 3.4 percent rise on September 6.
The STOXX Europe 600 Banking index was the best-performing equity sector, rising 2.9 percent after better-than-expected profits at Wall Street firm Goldman Sachs lifted financial stocks. "We are a bit more positive for the time being, and we are more equity-orientated in terms of the portfolio," said KBL Switzerland Chief Investment Officer Philippe Carette.
"We were quite defensive, but we have been adding more financial stocks to the portfolio," he added. Some traders added that technical analysis suggested key European markets were poised for further gains. The Euro STOXX 50 broke out of a downward channel started in mid-September. IG France analyst Jerome Vinerier said the Euro STOXX 50 was on track to get close to its year high of 2,611.42 points, which was hit in mid-March.
"We are going to continue to recommend that people hold out for a bit higher," added Berkeley Futures' head of trading Charles de Roeper. Spain's benchmark IBEX equity index gained 3.4 percent, rising on the back of persistent speculation that the debt-ridden country is moving closer to a sovereign bailout. A Bloomberg report that Germany may be open to Spain seeking a precautionary line of credit from the region's bailout fund also boosted stocks, buoyed the euro and trimmed Spanish debt yields.
A German lawmaker subsequently said the report had "over interpreted" his comments. Norbert Barthle, budget spokesman for Chancellor Angela Merkel's centre-right Christian Democrats (CDU), said he had only been making the general point that a precautionary credit line was one of a number of options available under the euro zone's new bailout fund, the European Stability Mechanism (ESM).
JN Financial investment manager Edward Smyth said bailout expectations were keeping sentiment positive but he had nevertheless taken a "short" position - which bets on a future fall - on the IBEX at 7,935.50 points. "The return of uncertainty may cause the market to pull back a bit," he said. The FTSEurofirst 300 index has risen around 9 percent since European Central Bank head Mario Draghi pledged in late July to do "whatever it takes" to protect the euro currency from the effects of the region's sovereign debt problems.
However, Citi global head of trading strategy Antonin Jullier said asset allocations to European equities were still generally underweight. "The biggest sector underweight right now in Europe remains the banks," added Jullier. Caroline Vincent, European equities fund manager at Cavendish Asset Management, said that while her portfolio was evenly spread across the various equity sectors, she did not hold "anything too risky." "There's still a lot of uncertainty, and the main problem in Europe is that there's no growth," said Vincent.
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