Europe's top shares gained on Thursday as Spain prepared to test investors appetite for risk at its auction of two- and 10-year bonds, while CaixaBank underperformed after its first-quarter profit plunged.
The FTSEurofirst 300 index of top European shares added 7.26 points, or 0.7 percent to 1,053.44 by 0756 GMT, having pared Tuesday's sharp gains in the previous session.
Investors will watch Spain's bond yields nervously as the debt auction comes the day after the country revealed that banks' bad loans surged to their highest since October 1994 in February. Spanish stocks were flat, having slipped 4 percent on Wednesday.
Gerry Celaya, chief strategist at Red Tower Research, said he expects the Spanish bond auction to be well supported but sees bond yields creeping above 6 percent in the longer-term as appetite for the debt fades, which will cause bond yields in other shaky peripherals such as Italy to drift higher.
He said the rising bond yields will have a further negative impact on stocks and forecasts the Dax, which has enjoyed a 14 percent rise at the start of 2012, to close around 14 percent below its current level of 6,779.
A rush back into defensive shares last week showed investors are turning more pessimistic due to resurfacing sovereign debt concerns and a market "capitulation" might be getting closer, UBS said.
Underpinning the rush to quality are investors concerns over the strength of the banking sector and its ability to sustain itself once central bank stimulus is withdrawn.
In the U.S. Goldman Sachs posted a 23 percent decline in quarterly earnings earlier this week, while on Thursday Spanish bank CaixaBank fell 0.5 percent after it revealed net profits dropped 84 percent in the first quarter after it took hefty provisions against potentially soured property assets to comply with government regulation on capital levels.
Peers Santander and Bankinter are due to report next week.
TECHNICAL BARRIERS
Upside for European shares looks limited, with tough resistance seen at around 1,071 for the FTSEurofirst 300, where its 23.6 percent retracement and the 50-day moving average coincide.
The blue chip Stoxx 50 index continued to labour below its 200-day moving average around 2,361.
Having fallen on Wednesday, indexes saw broad-based buying with media the only sector in negative territory, weighed on as Publicis shed 3.5 percent after the French advertising agency warned business would slow in second-quarter before picking up later in the year.
The biggest faller by far was Britain's Cable & Wireless Worldwide, which tumbled 23 percent after Tata Communications pulled its bid for the company, opening the door for a possible offer from Vodafone for the firm.
On the upside, results helped lift SKF, the world's biggest bearings maker, up 4.4 percent after it struck an upbeat note for the industrial sector forecasting rising demand from the United States and Asia and a more stable Europe after in-line quarterly earnings.
AkzoNobel rose 3.7 percent after the world's largest paints maker and owner of the Dulux brand's first-quarter results beat analyst expectations.
Atlas Copco added 4.5 percent after it was awarded a large mining order in South Africa.
And Beiersdorf climbed 2.4 percent as Exane BNP Paribas upgraded the consumer goods firm to "outperform" saying it believes the company is on the cusp of a period of material margin expansion with the management team in place.
