European shares edged higher on Tuesday after an agreement by international lenders to cut Greece's debt gave some short-term support to investor sentiment.
Some traders had their doubts about details of the plan, though, among them Greece's ability to meet deficit-reduction targets. Concern persisted over the lack of comprehensive measures to tackle the euro zone debt crisis.
The FTSEurofirst 300 index, which rose 4 percent last week, closed up 0.3 percent at 1,107.65 points as the Greek deal clearing the way for the next tranche of aid to Athens. The blue-chip Euro STOXX 50 index failed to perform as well, ending just slightly higher at 2,543.45 points.
"There's a glimmer of hope, but the market needs more than that," said XBZ European equity options broker Mike Turner. "There's a small negative bias towards the market. Medium-term, it's sideways at best."
Turner said clients had bought put options – often used on expectations prices will fall – on the Euro STOXX 50, with a 2,400 point strike price for options due to expire in December, and a 2,200 strike price for those expiring in January.
Germany's DAX equity index rose 0.6 percent to 7,332.33 points, but JN Financial investment manager Edward Smyth favoured short trades against it, which bet on a future fall in the DAX, over long trades betting on future gains.
"As long as the DAX remains below 7,450, I see more value being short than being long," he said.
Smyth remained sceptical over the problems facing Greece, which has struggled to meet the terms of its sovereign bailout while Spain remains under pressure to seek a sovereign rescue deal.
"They've just given Greece a bit more rope with which to hang themselves. The underlying economic situation hasn't changed. I want to see more structural reforms in Europe," he said.
Food company Nestle and healthcare group Novartis together added the most points to the FTSEurofirst 300, indicating a tendency to favour defensive stocks considered safter in a weakening economy, over more risky stocks such as banks.
VALUATIONS FAVOURING EUROPEAN EQUITIES
Other traders and investors were more positive on European equities. Societe Generale's Private Banking arm wrote in a research note that it expected the Euro STOXX 50 index to end the year at 2,650 points.
The FTSEurofirst 300 is still up nearly 10 percent since European Central Bank head Mario Draghi pledged in late July to do "whatever it takes" to protect the euro from the region's economic crisis.
"We have added to our long positions on European equities as quantitative models saw the recent drop in equities as a retracement and therefore a buying opportunity rather than a change of a long-term trend," said Rafael Molinero, who runs quantitative hedge fund Molinero Capital Management.
European shares are also still valued slightly more cheaply than those in the United States.
According to Thomson Reuters Starmine data, the pan-European STOXX 600 index has a price-to-earnings (PE) ratio of 11.2 for estimated earnings over the next 12 months – less than a corresponding P/E of 12.6 for the U.S. S&P 500 index.
"We tactically prefer euro zone equities to other markets as most of the bad news has been priced in and rock-bottom valuations offer greater upside," SGPB wrote in its note.
