European equities steadied on Tuesday, with investors unwilling to make large bets until there is clarity on the strength of the domestic economy and on how soon the US Federal Reserve may begin to scale back stimulus. The FTSEurofirst 300 closed down 0.1 percent at 1,183.44 points, holding some 6 percent below the 5-year peaks set last month, before the possibility of fewer asset purchases from the Fed sent global equities into a tailspin.
Mixed European data offered only limited support, with the keenly watched ZEW index pointing to improved economic sentiment in Germany but worsening current conditions. "For the eurozone equities, the key issue is that markets have risen since August of last year without support from rising company earnings. So we need to see some improvement from economic hard data in order to support the levels that we have reached," said Tammo Greetfeld, equity strategist at UniCredit.
"Against this backdrop, investors are now also confronted with the Fed tapering debate, and this is an additional argument to expect equity markets to move sideways in the months to come." Heightened uncertainty surrounding this week's Fed meeting - which finishes late on Wednesday - was highlighted by a pick-up in one-month implied volatility and in the low volumes, with just 80 percent of the 90-day daily average traded on the FTSEurofirst 300.
"No one wants to be caught on the wrong foot," said Anita Paluch, sales trader at Gekko Global Markets. Longer-term, though, investors still expect further gains for European equities, with a Reuters poll published on Tuesday forecasting high single-digit percentage gains for the main indexes from now through to year-end. Indeed, some analysts said recent market weakness opened opportunities to buy strong companies more cheaply, with Citi citing valuation among reasons for its upgrade of HSBC. Investors also continued to reward strong earners - sending Britain's Whitbread to an all-time on news of rising sales - and potential bid targets. Kabel Deutschland rose 3.7 percent after it said Liberty Global made a take-over offer for the German cable operator, raising the possibility of a bidding contest with Vodafone.