European shares bounced on Monday after a steep sell-off last week, with Italy's ENI among the main gainers on hopes that a new political regime in Libya will help it restore oil production activities to former levels. ENI, the biggest foreign oil producer in Libya, rose 6.3 percent. France's Total, also among heavyweight energy companies active in Libya, rose 2.3 percent.
The sector gained 1.3 percent, despite Brent crude falling by more than $1 to around $107 a barrel, with traders and investors anticipating the resumption of oil exports from Opec-member Libya as a six-month civil war there appeared close to an end. The FTSEurofirst 300 index of top European shares rose 0.8 percent to close at 916.78 points, having risen as high as 933.35, after falling 6 percent last week.
Trading volume was light at 86 percent of the index's average for the last 90 days. This caused some strategists to question whether the rally would continue, but others said the market might have hit its low. "If you believe super-easy monetary policy and lower oil prices can help growth stay positive, albeit rather anaemically, then this market forms a base," Bob Parker, senior adviser at Credit Suisse, said. "It's not going to be driven by corporate earnings. It's going to be macro-driven." The pan-European index is still down 18.3 percent in 2011.
Investors have cut their exposure to risky assets such as stocks following an escalation of the eurozone debt crisis, the United States losing its triple-A credit rating and weak economic data from major economies - which sparked concerns they may lapse back into recession.
The Federal Reserve holds its annual global banking conference in Jackson Hole, Wyoming, at the end of the week, with markets watching a speech on Friday by Fed Chairman Ben Bernanke for clues to whether he plans further quantitative easing (QE) or other stimulus measures for the flagging US economy. Parker said there was a "risk of disappointment" and the market may be expecting too much in looking for Bernanke to announce more QE.
The healthcare sector rose 2 percent. The defensive attractions of the sector have helped it outperform the wider market in 2011 and it has lost just 2.6 percent. As a consequence, its price-earnings ratio is now above the average. Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 8.7, the lowest since early 2009, while the healthcare sector trades at 10 times.
Roche rose 3 percent after an experimental drug designed to raise "good" HDL cholesterol produced encouraging results in a small mid-stage clinical trial. Across Europe, Britain's FTSE 100 and France's CAC40 both rose 1.1 percent, while Germany's DAX fell 0.1 percent. Investors continue to worry about the impact of a weaker economic backdrop on German exporters such as carmaker BMW, down 4.2 percent. Gold rose almost 2 percent to a record near $1,900 an ounce as a sputtering global economy boosted expectations for further monetary easing, raising bullion's appeal as a hedge against inflation.
Citigroup raised its gold price forecasts, upped its recommendation on London-listed Russian miner Petropavlovsk to "buy" and named Randgold as its preferred play in the sector. The two companies gained 6.2 and 3.9 percent respectively. Some technical analysts remained cautious about the wider market. The 14-day Relative Strength Index for the pan-European benchmark rose to nearly 30 on Monday. In technical terms, it remained "oversold", defined by values below 30.