Europe stocks gain ground on stimulus expectations

Last Updated: Tue, Aug 14, 2012 11:30 hrs

* FTSEurofirst 300 up 0.5 pct, Euro STOXX 50 up 0.6 pct

* Euro STOXX 50 halted by long-term descending trendline

* 200-day moving average turns upwards, seen as bullish sign

* Banks resume recovery, up 25 pct since Draghi's comments

By Blaise Robinson

PARIS, Aug 14 (Reuters) - European stocks rose in morning trade on Tuesday, reversing the previous session's dip and resuming their three-week rise as tepid growth figures from Europe strengthened the case for further stimulus measures from the region's policymakers.

At 1042 GMT, the FTSEurofirst 300 index of top European shares was up 0.5 percent at 1,099.80 points, after losing 0.4 percent in the previous session.

Data showed on Tuesday the euro zone economy contracted by 0.2 percent in the second quarter, while Germany eked out growth of 0.3 percent but the country's forward-looking ZEW sentiment index slid for a fourth month running, undercutting even the lowest estimate in a Reuters poll.

"The data was broadly in line with what was expected, so not much impact on the relatively good mood in equities, which seem to have further room on the upside. If the rally of the past three weeks was not justified, then we would have had a big pull-back already," said Alexandre Baradez, senior sales trader at Saxo Banque.

"The only thing that could hit sentiment now is if we get negative headlines on the ESM (European Stability Mechanism) out of nowhere. But all in all, the trend is positive and investors who have missed the rally are getting nervous now."

Banking stocks featured among the top gainers, with Italy's Intesa Sanpaolo up 1.4 percent, Spain's Banco Santander up 0.8 percent and France's Natixis up 0.7 percent.

The euro zone bank index, which was up 0.8 percent on the day, has shot up 25 percent since European Central Bank President Mario Draghi said in late July the ECB was "ready to do whatever it takes to preserve the euro", triggering expectations of bold measures to help lower the borrowing costs of debt-stricken Spain and Italy.

The euro zone's blue chip Euro STOXX 50 index was up 0.6 percent on Tuesday, at 2,430.43 points, but was halted for a sixth session in a row by a strong resistance level, a long-term downward trendline formed by 2011 and 2012 highs, at about 2,437 points.


Charts show the blue chip index has been forming a 'flag' over the past week, a technical charting pattern formed by swings within a narrow range in a mild consolidation trend.

The flag, one of the most reliable 'continuation' patterns, usually signals a pause in a rally with a drop in trading volume, before the index resumes its uptrend.

Volumes on the index have sharply dropped over the past two sessions to levels not seen since the holiday week in late December.

Volumes were extremely low again on Tuesday. By midday, the volume on the index was a thin 17 percent of the 90-day daily trading volume.

"Technically speaking, the trend has completely turned positive. The 200-day moving average on the Euro STOXX 50 has turned upward," said Riccardo Designori, financial analyst at Brown Editore, in Milan.

"We might get a 5-6 percent consolidation this week or next, but it won't change the broad picture. Buying the retracements has been a great strategy lately."

Despite the recent recovery in euro zone stocks and the drop in implied volatility, the Euro STOXX 50 remains the most volatile of major indexes within developed markets, according to Thomson Reuters data.

So far this year, the index has had 33 sessions where intraday swings exceeded 2.5 percent, compared with only one session for the S&P 500 and four for Tokyo's Nikkei .

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