European equities traded higher at midday on Monday, erasing early losses, after a tick-up in U.S. stock index futures fuelled gains for European bank shares while miners fell on weaker metals prices. By 1107 GMT, the FTSEurofirst 300 index of top European shares was up 0.5 percent at 844.40 points, having fallen as much as 1.5 percent earlier following Wall Street losses on Friday and weak Asian stock markets on Monday.
"It is a mood of wait and see. What will happen next? We don't have any large stories, important stories, in the market today. So we follow the Wall Street (futures)," said Heinz-Gerd Sonnenschein, equity strategist at Postbank in Germany.
"If Wall Street goes down, we will go down again," he said.
S&P Equity Research also said European stock markets lacked a clear trend.
"European equities offer both limited upside and shortfall risk for the next 12-month horizon," S&P said.
"The large rally we have seen is the recovery rally, not the start of an upward trend … equities are not undervalued. But neither are they overvalued. Hence, we anticipate a prolonged drift in European equities," it said in a strategy note.
Banks added most points to the European benchmark index, with KBC up 8.3 percent, UniCredit rising 8.4 percent and HSBC 3.9 percent higher.
Citigroup reiterated its "buy" recommendation on HSBC and raised its target price to 650 pence.
"We believe HSBC will emerge from the current turmoil in better shape than most of its international competitors," Citigroup said in a note.
Telecoms, traditionally a safe haven popular among investors thanks to above-average dividend yields, was another strong sector on Monday.
Telecom Italia was up 3.2 percent, Vodafone rose 1.9 percent and Deutsche Telekom added 0.9 percent.
ING downgraded defensive healthcare, telecom, retail and media sectors to "neutral" from "overweight".
"Conventional wisdom says that equity markets are due a pull back of about 15 percent following a rally of 40 percent," ING said in a strategy note, adding that in such a scenario defensives were unlikely to attract any significant inflows, but might outperform due to an absence of selling.
INESTORS READY TO POUNCE
Postbank's Sonnenschein said stock markets looked well supported and were unlikely to collapse.
"It is difficult to push the market down. The market does not want to go down. Those investors who missed out on the rally, when they see a dip they say: 'Ok. Now I'll go in and try'," Sonnenschein said.
"There is a little bit more optimism in the market than pessimism," he added.
The FTSEurofirst 300 index lost 3 percent last week, but is up more than 29 percent from its March 9 trough.
JPMorgan advised investors to buy on the dips.
"On the heels of one of the sharpest market rebounds ever, the widely expected correction could even be seen as healthy," JPMorgan said in a European equity strategy note.
"One should remain 'overweight' stocks and be buying the dips. Provided that the macro dataflow does not begin to disappoint again, we believe that the technical headwinds and the profit-taking will be transitory," JPMorgan said.
Mining was the weakest sector in Europe on Monday, tracking lower metal prices. Shanghai copper fell nearly 2 percent as investors worried that an oversupply may be emerging in China.
"There is concern about whether China will be able to absorb the record imports that reached 399,833 tonnes in April," Fairfax said in a note.
Rio Tinto dropped 4.1 percent. Exane BNP Paribas downgraded the stock to "neutral" from "outperform".
Xstrata was down 3.2 percent, Lonmin fell 2.9 percent and Anglo American slipped 1.1 percent.
However, Vedanta bucked the sector trend, rising 3.4 percent. Analysts welcomed election results in India, where Vedanta has the majority of its operations.
Elsewhere, shares in sports car maker Porsche fell 3.0 percent after Volkswagen halted merger talks between the two companies. Volkswagen was down 0.9 percent.
