By Sitaraman Shankar
LONDON, Jan 29 (Reuters) - European shares rose in early
trade on Tuesday, tracking global equity gains on hopes that the
United States would cut rates to head off a recession, with
banks and commodity stocks the top winners.
At 0920 GMT, the FTSEurofirst 300 <> index of top
European shares was up 1.26 percent at 1,333.76 points.
Banks were generally higher, with rogue-trading-hit French
lender Societe Generale <SOGN.PA> recovering 3.1 percent, HSBC
<HSBA.L> gaining 1.4 percent and UBS <UBSN.VX> 1.6 percent.
Societe Generale disclosed last week that unauthorised
trading by one of its employees had cost it $7 billion, and the
Wall Street Journal reported that French peer BNP Paribas
<BNPP.PA>, was weighing a bid for the group. BNP, whose shares
rose 1.3 percent, could not be immediately reached for comment.
Shares in travel group TUI <TUIGn.DE> jumped 3.4 percent in
Germany and London-listed TUI Travel <TT.N> nearly 4.5 percent
after TUI Travel said it was in talks about merging its TUIfly
airline with Lufthansa's Germanwings.
But with the Fed expected to announce a further cut in rates
on Wednesday, the focus was on the U.S. central bank after a
torrid month for equities.
"What we've had is a mix of weak data, poor corporate
numbers, fears over writedowns and problems at monoline
insurers, with the element of a rogue trader thrown in, all of
which have conspired to create a perfect storm of uncertainty,"
said Barclays strategist Henk Potts.
"It now all comes down to the ability and willingness of
central banks to act."
A total of 18 out of 20 primary dealers polled by Reuters
forecast the Fed to cut benchmark rates, with 14 expecting a
half-point reduction.
The Fed cut rates by 75 basis points in an emergency move
last week.
COMMODITIES GAIN, RATES EYED
Commodity stocks gained as economy-sensitive metal and oil
prices rose.
Miners tracked higher metal prices, with Xstrata <XTA.L>
gaining 3.7 percent, Anglo American <AAL.L> 2 percent and Rio
Tinto 1 percent.
Similarly, heavyweight oil stock BP <BP.L> gained 1.2
percent, benefiting from crude steady just under $91 a barrel.
Among other major movers, Swiss bank Julius Baer <BAER.VX>
jumped 3.8 percent on market talk that Qatar was interested in
buying a stake, traders said. Baer declined to comment.
With two trading sessions left this month after Tuesday's
trade, the FTSEurofirst 300 has lost 12 percent in January,
putting in on track for the worst month since September 2002.
The index gained 16 percent in the whole of 2006 and 1.6
percent last year, but the wheels have come off an equities bull
run in the wake of a credit market crisis stemming from a
meltdown in the market for subprime or risky U.S. mortgages.
The FTSEurofirst is now off 18.5 percent from its multi-year
peak of 1,635.58 hit in July last year. Analysts consider a 20
percent fall from such a peak as signalling a bear market, but
some argue that valuations are now so low that it is time to
buy.
JPMorgan said in a note that was upgrading European equities
to "overweight", while it downgraded bonds to "neutral". It also
continued to prefer UK equities to eurozone and reversed its
preference for defensives over cyclicals.
"While the concerns we had for the market, namely terrible
growth-inflation tradeoff and negative earnings revisions, are
not going away, MSCI Europe <> last week traded through
our "bear case" scenario of 1,300, and we feel that risk reward
for equities has improved," the broker said.
(Additional reporting by Dominic Lau; Editing by Quentin Bryar)
