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Europe: Stock markets recover, boosted by banks

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[LONDON] European stock markets recovered from a weak start on Wednesday, with a rally in banks and a rebound on Wall Street helping to counteract some weak corporate earnings from companies including Switzerland's Sonova .

The pan-European FTSEurofirst 300 index rose 0.8 per cent to 1,325.78 points by the close, recovering from an early fall.

Signs that inflation was returning to the US economy and hawkish comments from a Fed official had hit Wall Street on Tuesday, leading to a weaker open for European stocks. However, strength in tech giants Apple and Amazon helped Wall Street to rebound.

Banks were among the top sectoral gainers, up 2 per cent with some citing the prospect of higher rates as providing relief for the sector, which has struggled to preserve net interest margins and profitability in a low-rate environment. "The idea of a normalisation of rates is coming back on to the cards, despite it being written off recently, and that's one of the major issues that banks have been dealing with," said Joshua Mahoney, market analyst at IG.

Italian banks rallied, and the blue-chip index FTSE MIB outperformed, up 1.2 per cent, benefiting from ongoing speculation of consolidation among some of Italy's smaller banks.

Portuguese lender BPI rose 2.3 per cent, to trade above 1.113 euros, which was Caixabank's offer for the bank.

While BPI welcomed the bid from its Spanish peer when it came in late on Tuesday, it said the offer was "low", leading some traders to speculate as to whether a higher bid might be forthcoming.

British lender Lloyds rose 3.3 per cent, with traders citing speculation that the UK government would seek to restart the process of selling off its shares in the bank. RBS, which the government also holds shares in, rose 4.3 per cent.

Despite the rally, the FTSEurofirst is down by around 8 per cent so far in 2016, with concerns about a China-led global economic slowdown having impacted world stock markets this year.

Investment bank Goldman Sachs also cut its view on global equities, downgrading the asset class to "neutral".

"Until we see sustained earnings growth, equities do not look attractive, especially on a risk-adjusted basis," Goldman Sachs wrote in a note.

Weak earnings were a weight on the market, and Swiss hearing aid maker Sonova was among the worst-performing stocks in Europe, slumping 6.4 per cent after missing its full-year sales and profit targets.

Fashion firm Burberry fell 2.7 per cent, after a 10 per cent fall in profit, saying that full-year results for this year would come in towards the lower end of current expectations.

Among gainers on the STOXX Europe 600, Booker Group rose 6 per cent after an upgrade to "buy" from "neutral"by Goldman Sachs.

REUTERS