European shares rose yesterday, recovering after the previous session’s hefty falls on the prospect of diminished stimulus from the US Federal Reserve, but with traders braced for a choppy ride.

The Fed said late on Wednesday that a stronger US economy meant it was likely to start scaling back its asset purchases later this year.

Central bank stimulus measures had helped push European markets to five-year highs in 2013 despite a shrinking domestic economy and falling earnings expectations, but the threat of withdrawal has knocked the index around 9 per cent since mid-May.

“The fear is setting in, with a lot of cutting of bullish positions.

“The most likely scenario is that rallies will be sold so I would be very careful buying the dip,” said Lex van Dam, of Hampstead Capital.

Nick Xanders, head of European equity strategy at BTIG, highlighted that the STOXX 600, up 0.3 per cent at 284.43, is trading dangerously near its key 284 support level, which cushioned the market in April and February.

“I think we’re a very nervous market,” he said. “I don’t think we’re done (with the sell-off) ... I think we’ll definitely be volatile (in the medium term).” (Reuters)