European shares bounce back from sharp two-week slide

European shares rose in early trade today, bouncing back from a sharp two-week slide and tracking a rally on Wall Street, after investors deemed Moscow was not about to send troops into Ukraine - a move which would intensify sanctions.

Late on Friday, Russia’s defence ministry said it had ended military exercises in southern Russia which the United States had criticised as a “provocative” step, sparking a sharp rally on Wall Street.

Germany’s Dax outperformed today, up 1.4 per cent, with Daimler up 2.2 per cent and Adidas up 1.2 per cent. German companies are seen as the most vulnerable to tensions between the West and Russia because of the strong economic links between the two nations.

The situation on the ground remains uncertain, though, meaning any relief rally could be fragile.

A Ukrainian military spokesman said today government forces were preparing to recapture the city of Donetsk from pro-Russian separatist rebels, while at the weekend US president Barack Obama and German chancellor Angela Merkel agreed any unauthorized Russian intervention in Ukraine, even under purported 'humanitarian' auspices, would provoke "additional consequences."

“Fears over the conflict between Ukraine and Russia have receded for now, which helps the market recover some ground,” said Arnaud Scarpaci, fund manager at Montaigne Capital, in Paris.

“The 10 per cent correction in Europe has brought some nice buying opportunities, and the market was clearly oversold on Friday. But this is mostly a technical bounce which should last just a few days,” he said.

Earlier, the FTSEurofirst 300 index of top European shares was up 1.1 per cent at 1,320.08 points.

The benchmark index had lost as much as 7.4 per cent since mid-June, with the euro zone’s blue-chip Euro STOXX 50 index dropping 10 percent over the same period.

Technical charts showed both indexes had slipped into “oversold territory”, with their relative strength index (RSI) falling below 30.

Euro zone banking shares - recently hit by the bailout of Portugal’s Banco Espirito Santo - featured among the top gainers on Monday, with Banco Popolare rising 8.3 per cent after Italy’s fourth biggest bank reported stronger-than-expected quarterly results.

Asian stocks rose overnight, while the dollar held steady against the safe-haven yen after rebounding sharply late last week.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 1 per cent, more than making up for Friday’s 0.9 per cent drop when geopolitical woes buffeted risk markets.

Tokyo's Nikkei rose 2.2 per cent, and also was helped as the yen's sharp rally against the dollar on Friday was reversed. The index had lost 3 per cent on Friday. But investors remained wary with tensions persisting in other global hotspots such as Iraq, marked by an increasing death toll and new US air strikes.

“We are seeing investor sentiment caught between positive US economic fundamentals and psychological negatives, like geopolitical risk. Investor sentiment is easily swayed in such a situation, which could lead to higher volatility and market turbulence,” said Koji Fukaya, president at FPG Securities in Tokyo.

Reuters