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Banks’ bounce aids European shares rebound

A return to form by Europe’s banks helped the continent’s shares recover yesterday with data pointing to potentially stronger global growth driving demand for equities.

The FTSEurofirst 300 closed up 13.82 points, or 1.2 per cent, at 1,162.10.

A narrowing trade deficit in the US and data overnight showing growing demand for Chinese exports nurtured hope that the global economy will strengthen.

Meanwhile, European Union leaders ended a bout of uncertainty by reaching an agreement on the bloc’s long-term spending plans after more than 24 hours of negotiations.

The eurozone blue chip index rose 1.3 per cent, finding support around its 200-week moving average (MA) at 2,616. The index has not closed below its 200-week MA since mid-December.

The brightening outlook for the global economy helped lift demand for miners, which rose one per cent, but it was the banks, up 2.8 per cent, which were the main drivers.

French bank Credit Agricole gained 6.9 per cent after brokerage Exane upgraded it to “outperform,” citing the significant discount it trades at relative to peers.

Norwegian bank DNB rose 4.6 per cent, building on a seven per cent gain in the previous session after having delivered on its dividend promise, after UBS, Nomura and Credit Suisse produced upgrades on the stock.

The sector as a whole regained most of the losses of the past four days but found resistance around its 14-day moving average of 175.75.

While the broader FTSEurofirst 300 finished the session strongly, the index fell for the second week in succession, edging further away from two-year highs which is proving a tough resistance level.

“On a personal level if you are the man on the street would you be looking to buy into this move? It is a tough decision but if you believe in the macro data that we are seeing then things care coming together which will aid the recovery further,” a London-based trader said.

Improving global data could help companies keep up with their recent reratings, which in terms of price-to-earnings ration (PE) of 12 times are now at post credit crises highs.

Heavyweight mobile telecoms firm Vodafone climbed 1.2 per cent after BofA Merrill Lynch upgraded the company to “buy” from “neutral” noting consensus earnings downgrades are slowing and could potentially of a merger or takeover in the future.

With PEs at multi-year highs companies are under pressure to meet expectations.

Fifty-six per cent of companies in Europe have so far met or beaten earnings expectations in the fourth quarter, although year-on-year fourth-quarter earnings have contracted 22.5 per cent, according to Thomson Reuters (TRS) data.

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