Soothing words from central bankers in China and the United States calmed investors on Tuesday and contributed to European shares bouncing off seven-month lows. The FTSEurofirst 300 closed up 16.18 points, or 1.5 percent at 1,130.37, having closed at its lowest since late November 2012 in the previous session spooked by liquidity worries after the Federal Reserve said it would begin stimulus withdrawal in the US later this year and credit tightening in China.
"The pullback has been healthy. You could argue that it has cleared out some of the more speculative (risky) positions," Philip Poole, global head of macro investment strategy, said. "One of the problems with QE is that it is meant to stimulate the real economy but a lot of the liquidity pumped in was sitting in the financial sector ... creating the possibility of assets bubbles building and central bankers were concerned about that," he said.
Helping calm the storm that has seen European shares fall as much as 11.4 percent May 23, China's central bank said that it would guide rates to reasonable levels and two US Federal Reserve officials downplayed the notion of an imminent end to monetary stimulus. The FTSEurofirst 300 promptly rebounded off large oversold levels, according to its 14-day relative strength index, although the index faces resistance on the upside around 1,145.
The rally was broad-based with every sector in positive territory except utilities, which were only marginally lower. Dominic Hawker, technical analyst at Messels said among Europe's indexes Germany's DAX looks most constructive in terms of upward trend support, while Britain's FTSE 100 has good upward support stretching back to March 2012. Technicals helped lift some of the biggest risers on the index too. Chip designer ARM Holdings rallied 3.6 percent, having dropped around 30 percent since its May peak, boosted by Investec Securities' upgrade to "buy" from "hold".
"We see ARM as the most attractive long-term investment in the sector with underpinned earnings growth. Negative sentiment, but strong fundamentals create an attractive entry point in our view," Investec says in a note. Credit data company Experian rose 4 percent bouncing off the upward trend line from the 2011 lows passing through the December 2012 trough and back above the 200 day moving average ahead of results later in July.
Cruise operator Carnival Corp rallied 5.3 percent as investors cheered the departure of Chief Executive Micky Arison in hope of a swift turnaround, as the company continues to struggle with a series of mishaps that have hurt bookings. Oil services firms were among the top fallers. Petrofac shed 1.2 percent after its latest update failed to lift the gloom shrouding the sector brought on by peer Saipem's recent profit warnings. A profit warning saw can maker Rexam shed 2.7 percent.
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