European equities rebounded from five-month lows on Monday, with investors seeing value after the steep retreat to five-month lows and taking heart from global politicians' weekend pledge to combat financial turmoil and prevent a euro zone break up.
The leaders of G8 major industrialised nations said they would take steps to revitalise the global economy and called for Greece to remain in the euro zone. There were also some signs of a more conciliatory approach from Greece itself, with leftist leader Alexis Tsipras stressing he wants Greece to stay in the euro, albeit on renegotiated terms.
With no fresh escalation of the European crisis, investors acknowledged that risks remained but found grounds for a cautious return to the region's equity market, which has lost 12% in two months, more than wiping out a new year rally.
The FTSEurofirst 300 added 0.5% to close at 975.04 points, breaking a week-long losing streak and recovering from a five-month low of 964.66.
"Both Europe and UK have sold off quite dramatically so there is potential for a floor … We are not seeing as bad a scenario as some people," said Oliver Wallin, investment director at Octopus Investments, who has started buying back into UK and euro zone equities.
The overall mood in the market, however, remained cautious, with globally-orientated markets and companies favoured over those more reliant on the health of Europe.
The DAX – which benefits both from its export orientation and from Germany's relative strength versus other euro zone economies – was the star performer, rising 1%.
Goldman Sachs recommended "global versus domestic exposure" in Europe and a long bet on the DAX over the French CAC.
On a stock level, Renault rose 4.7% after UBS added the French car marker to its European key calls list, applauding "reduced dependence on Europe for its sales and manufacturing".
Rival Fiat rose 8.6% on expectations of a possible imminent decision to mop-up the remaining 42% stake in Chrysler. Strong U.S. sales from Chrysler were key to Fiat's profitability in the first quarter, counterbalancing the weak showing in Europe.
DEAD CAT?
On the downside, budget airline Ryanair shares lost 3.3% after warning that a worsening economic outlook in Europe would take a toll on this year's profits.
Spain – burdened by debts and seen as a potential victim of any contageon from a possible Greek euro zone exit – saw its stock market fall 0.7%.
"Overall there isn't really any solution on the table … and the very high uncertainty in the market. It's a typical dead cat bounce," said Tomas Berggren, equity analyst at Saxo Bank.
Wallin at Octopus agreed that risks remain, preferring to bet on any possible upside via exchange traded funds (ETFs) rather than the cash equities market because of their greater liquidity, so that positions can be unwound easily "if things take a turn for the worse".
