Euro, shares recover as European worries recede

Tue Feb 5, 2013 8:06am EST
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By Richard Hubbard

LONDON (Reuters) - European shares, oil and the euro bounced back on Tuesday from a selloff caused by rising political risks in southern Europe, as data confirmed the region's economy is showing signs of recovery.

The euro, which had taken the brunt of the selling and fallen from a high of over $1.37 at the end of last week to under $1.35 on Monday, rose 0.3 percent to trade at $1.3560.

European shares followed a similar path, recovering from the Monday sell off, while U.S. stock index futures indicated Wall Street would rebound from its worst daily session since November when trading resumed later on Tuesday.

Analysts saw the market's gyrations as a necessary stage in a rally linked to signs of increasing euro zone economic stability and an improving global outlook, underpinned by the easier monetary policies of major central banks.

"Our working hypothesis remains that, after the correction, the trends in place before will continue, as the two main drivers are still there - namely central banks continuing to inject liquidity and more and more proof of an economic recovery," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.

The markets regained their composure on Tuesday after data confirmed the euro zone's still struggling economy was starting to turn around.

Markit's Eurozone Composite PMI, which gauges business activity across thousands of companies and is seen as good gauge of future growth, rose in January to a 10-month high of 48.6 - though this still means the region's economy is contracting.

"The euro zone is showing clear signs of healing, with the downturn easing sharply in January and the region moving closer to stabilization in the first quarter," said Chris Williamson, chief economist at Markit.   Continued...

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange January 4, 2013. REUTERS/Remote/Joachim Herrmann