European shares rebounded on Monday from a two-week drop, with the German DAX market outperforming, after investors concluded Russia would not send troops into Ukraine any time soon. Clashes continued between Ukrainian forces and pro-Russian separatists, and Nato's chief said on Monday that there was a "high probability" of Russia intervening militarily, yet traders said Moscow was still likely to try and de-escalate the crisis.
"The Ukraine situation appears to be stabilising. European shares took a big beating over the last couple of weeks, so we're seeing a relief rally," said Ion-Marc Valahu, a fund manager at Geneva-based firm Clairinvest. The pan-European FTSEurofirst 300 index, which had fallen some 7 percent over the last two weeks, closed up 1.3 percent at 1,323.12 points.
The euro zone's bluechip Euro STOXX 50 index also rose 1.4 percent to 3,047.56 points, while Germany's DAX outperformed with a 1.9 percent advance. Worries about the impact of Western sanctions on Russia had pushed the DAX down by around 11 percent from a record high of 10,050.98 points in late June, since many top German companies have significant business ties to Russia.
"I went long on the Euro STOXX and the DAX at the end of last week," said Valahu, referring to positions betting on future gains. With the situation on the ground in Ukraine remaining uncertain, any relief rally could be fragile. Ukrainian forces were poised to recapture the city of Donetsk from separatists, and US President Barack Obama and German Chancellor Angela Merkel agreed that any Russian intervention in Ukraine - even for 'humanitarian' reasons - would provoke additional consequences.
"The 10 percent correction in Europe has brought some nice buying opportunities, and the market was clearly oversold on Friday. But this is mostly a technical bounce, which should last just a few days," said Arnaud Scarpaci, fund manager at Paris-based Montaigne Capital. Euro zone banking shares - recently hit by the bailout of Portugal's Banco Espirito Santo - featured among the top gainers on Monday. Italy's fourth-biggest bank, Banco Popolare, rose 8.2 percent after stronger-than-expected quarterly results.
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