Central banks still key as European shares extend rebound

Last Updated: Thu, Feb 28, 2013 17:50 hrs

* FTSEurofirst up 0.9 percent

* Central bank stimulus seen supporting equities

* IAG, Essilor, EADS rise on earnings hopes

* RBS knocked as profits wane

* Euro STOXX 50 suffer first down month in eight

By David Brett

LONDON, Feb 28 (Reuters) - European shares rose again on Thursday, buoyed by fresh signs of central bank support and upbeat corporate results which helped indexes pursue their recovery of losses inflicted by Italy's inconclusive elections.

The FTSEurofirst 300 closed the last trading day of February up 10.89 points, or 0.9 percent, at 1,171.47, and has now recouped most of the losses sustained on Tuesday after Italian elections ended in a stalemate.

Pledges by the European Central Bank and U.S. Federal Reserve this week to sustain steps to inject liquidity into markets have propped up equities.

"Markets have bounced well from the sell off earlier in the week. Volumes, however, have been low and without the support from central banks and governments the indexes would be much lower than the levels we are currently at," Jawaid Afsar, sales trader at SecurEquity, said.

Underlining Europe's problems, data on Thursday showed Spain's economy shrank for the sixth straight quarter from October to December, and at its fastest quarterly pace since mid-2009.

But the unprecedented economic stimulus has helped to boost asset prices and kept a lid on bond and cash yields, which has benefited equities.

"It (still) looks like an attractive opportunity to move out of quality bonds, particularly gilts and into equity," Guy Foster, head of investment strategy at Brewin Dolphin, said.

Funds invested continued flow into European equities as institutional investors moved away from lower-yielding money markets on expectations of further monetary stimulus and possible inflation, Lipper and EPFR Global data shows.

"At the moment however there's still more evidence of this rally sucking in those who have been left in cash, rather than the much fabled 'great rotation'," Brewin's Foster said.

And there are signs equity market gains are running out of gas as economic concerns coupled with strong gains since June 2012 begin to take their toll.


The euro zone blue chip index fell 2.6 percent over the past month, dragged down by Southern European indexes in Italy and Spain, which fell as much as 8.7 percent as worries rose ahead of Italian elections.

Other euro zone indexes also finished down on the month with Germany's DAX and France's CAC down 0.4 and 0.3 percent, respectively.

Credit Suisse said traders had been surprised at the resilience shown in the equity market rebound this week, particularly when hedge funds are reducing risk - its data showed the long/short ratio recently slipped below 50 percent for the first time this year.

Equity market falls, however, remain relative with the EuroSTOXX 50 posting its first monthly loss after eight months of gains, breaking what had been its longest winning streak since 1997-8.

And investors continued to draw strength from an improving economic picture in the world's largest economy where data showed U.S. Midwest business rose to its highest level in nearly a year.

Leading the gainers in Europe were the likes of British Airways owner International Airlines, up 7.9 percent, the world's largest maker of opthalmic lenses Essilor, rising 5.9 percent, and Airbus parent EADS, climbing 5.5 percent, all buoyed by optimistic outlooks.

Those where a shadow has been cast over future earnings were beaten down with oil services firm Petrofac lower for a second day, down 2.9 percent as banks cut their forecasts after results on Wednesday.

Miner Kazakhmys fell 8.6 percent hit by worries over rising costs and after ENRC, in which Kazakhmys holds a stake, warned late on Wednesday of "significant" asset writedowns.

UK outsourcer Capita shed 2.9 percent on worries over the outlook for its margins, while UK lender Royal Bank of Scotland slipped 6.6 percent after its profits were hit as the UK regulator steps up pressure on banks.

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