European shares bounce back ahead of U.S. jobs data

By Atul Prakash

LONDON (Reuters) – European shares bounced back on Friday on hopes strong U.S. jobs data will signal a recovery in the labor market and show the economic recovery was gathering pace, though equities faced some technical resistance levels.

Investor appetite for risky assets rose, with the VDAX-NEW volatility index (.V1XI: Quote, Profile, Research) falling 5.6 percent to a one-month low. Financials stocks were broadly higher as investors looked beyond Irish banks’ stress test results on Thursday.

At 1133 GMT, the FTSEurofirst 300 (.FTEU3: Quote, Profile, Research) index of top European shares was up 0.8 percent at 1,133.90 points. The index ended the hectic first quarter with a tiny gain of 0.3 percent.

Investors awaited the all-important U.S. monthly jobs data, due at 1230 GMT. Nonfarm payrolls are forecast to have gained 190,000 after adding 192,000 in February, which would be a strong signal that the labor market has turned the corner after lagging the broader economic recovery.

But that would also raise monetary tightening concerns.

“A big number would be positive in the medium-term, but it’s a negative in the near-term because you get higher rate hike fears. People in the market will start worrying that the Fed is going to hike rates prematurely,” said Graham Bishop, equity strategist at RBS.

However, analysts remained bullish on the stock market’s medium-term outlook saying valuations were low and the corporate picture was improving.

“We are positive on the outlook for equities. We see that corporate earnings are well underpinned overall and that should be supportive,” said Anko Beldsnijder, managing director of MainFirst Asset Management, which manages 1 billion euros.

“We have added the metals and mining sector again to overweight because of attractive valuations.”

Technical factors were expected to cap gains in the near term. The euro zone’s blue chip Euro STOXX 50 (.STOXX50E: Quote, Profile, Research) index was up 0.7 percent at 2,932.15 points, moving toward its 50-day moving average at 2,950 points, a key resistance level.

FOCUS ON IRISH STOCKS Irish stocks were in the spotlight, with Bank of Ireland (BKIR.I: Quote, Profile, Research) up 39 percent, Allied Irish (ALBK.I: Quote, Profile, Research) up 16 percent and Irish Life (IPM.I: Quote, Profile, Research) down 54 percent after Ireland’s central bank said stress tests showed key lenders needed to recapitalize to the tune of 24 billion euros, in line with expectations.

Bank of Ireland, which has been told to raise 5.2 billion euros, said it is attempting to raise funds privately. If it cannot, it will be majority owned by the government.

“Everybody knew that the Irish banks needed additional capital … But the most important thing is that there won’t be any haircut on bonds,” a Paris-based analyst said.

The STOXX Europe 600 banking index (.SX7P: Quote, Profile, Research) rose 1.2 percent, with Barclays (BARC.L: Quote, Profile, Research) up 4 percent, Royal Bank of Scotland (RBS.L: Quote, Profile, Research) up 3 percent and Noreda Bank (NDA.ST: Quote, Profile, Research) up 0.8 percent.

Nomura suggested to become long Noreda Bank saying Nordic banks are well capitalized and highly geared to higher rates. It also recommends to become long HSBC (HSBA.L: Quote, Profile, Research).

But Italian banks came under pressure after Intesa Sanpaolo SpA (ISP.MI: Quote, Profile, Research) said it would announce its position on the question of a possible capital hike after its board meetings on April 5. Intesa shares fell 2.8 percent.

Concerns about the debt situation in peripheral euro zone countries remained. Portugal sold 1.65 billion euros in an extraordinary sale of short-term bonds on Friday, but analysts said its high cost of borrowing was still likely to force it into an international bailout within months.

Among individual movers, Frankfurt stock market operator Deutsche Boerse (DB1Gn.DE: Quote, Profile, Research) fell 2 percent after Nasdaq OMX (NDAQ.O: Quote, Profile, Research) and IntercontinentalExchange (ICE.N: Quote, Profile, Research) launched a rival bid for NYSE Euronext (NYX.N: Quote, Profile, Research).

(Additional reporting by Blaise Robinson in Paris; Editing by Hans Peters)

European shares bounce back ahead of U.S. jobs data