Putin comments help European shares to bounce back

Last Updated: Tue, Mar 18, 2014 17:50 hrs

* FTSEurofirst 300 ends 0.7 pct higher after early losses

* Putin's comments trigger relief rally

* Italy's FTSE MIB index outperforms

By Atul Prakash

LONDON, March 18 (Reuters) - European shares changed course to climb higher in late trading on Tuesday after comments from Russian President Vladimir Putin eased concerns that tensions over Ukraine will escalate.

The stock market witnessed a relief rally after Putin, defying Ukrainian protests and Western sanctions, signed a treaty on Tuesday making Crimea part of Russia but said he did not plan to seize any other regions of Ukraine.

That raised expectations the market will resume its recent rally after tumbling on the geopolitical tensions in Ukraine and concerns about a slowdown in China.

The pan-European FTSEurofirst 300 index closed 0.7 percent higher at 1,306.11 points, recovering from an earlier session low of 1,290.28. It fell more than 5 percent in about one week from a near 5-1/2-year high earlier this month and is still down 1 percent this year after surging 16 percent in 2013.

"The market has been rightly very worried that Putin's next move was some of the other eastern provinces of Ukraine," Macquarie strategist Daniel McCormack said. "If he is watering down expectations in that regard, that's obviously positive."

The biggest crisis between Russia and the United States since the end of the Cold War is likely to keep investors cautious, however.

Late on Monday, the United States and the European Union imposed personal sanctions on a handful of officials from Russia and Ukraine who were accused of involvement in Moscow's military seizure of the Black Sea peninsula.

"There is still a lot of uncertainty," said Frank Bonsee, equity sales trader at ABN AMRO, adding that market could trade sideways in the near term.

"There are still a lot of questions to be answered. What could be the next round of sanctions? How tough that could be?"

Around Europe, Italy's FTSE MIB outperformed some major markets and was 0.9 percent higher after hitting a three-year peak earlier in the session as investors bet on an economic recovery in the euro zone's periphery. Germany's DAX also rose 0.7 percent.

"The pairs trade 'short DAX' and 'long euro zone periphery stocks' has worked pretty well, with the MIB particularly strong," Societe Generale's head of equity derivatives strategy Vincent Cassot said.

On the downside, Sweden's Kinnevik, an investor in online fashion retailer Zalando, and British clothes chain Next fell 3.8 percent and 2.2 percent respectively after below-expectations earnings from UK-listed ASOS darkened the outlook for the sector.

Truck maker Scania fell 2.1 percent after board members responsible for assessing a takeover bid by Volkswagen for its outstanding shares said the offer was too low and recommended that minority shareholders reject it.

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