By Eva Kuehnen
FRANKFURT, Jan 17 (Reuters) - European shares rebounded on
Thursday as investors took courage from gains in Asia and
positive company updates while gearing up for comments from the
U.S. Federal Reserve and Merrill Lynch's <MER.N> results.
By 0948 GMT, the pan-European FTSEurofirst 300 index
<> was up 0.9 percent at 1,395.3 points, recovering all of
the previous day's losses.
The index hit a 16-month low on Wednesday as fears of a
recession in the United States intensified and investors moved
out of financials, mining, oil and technology stocks.
Financials were the main gainers in the European benchmark
index with HSBC <HSBA.L>, Barclays <BARC.L> and Royal Bank of
Scotland <RBS.L> all rising around 3 percent.
Carsten Klude, chief economist at M.M. Warburg, said the
rebound was not a change in the overall downward trend.
"We have a gap between good company and weak macro data,"
Klude said, adding he expects to see an adjustment on the
corporate side in the short term amid an overall bleak economic
environment.
"We are lacking visibility and that makes the market
nervous," he said.
The euro tumbled against the dollar on Wednesday after ECB
Governing Council member Yves Mersch told Bloomberg News he did
not rule out a downward revision of euro zone growth forecasts
for 2008, and that the central bank should remain flexible with
regard to fighting inflation.
Klude said this may be an indication for a change in
European monetary policy, from which the market now drew support
as it hoped to see supporting measures.
All eyes will be on Fed Chairman Ben Bernanke, who is due to
testify on the near-term outlook for the U.S. economy before the
House Budget Committee at 1500 GMT.
Markets will scrutinise his comments for clues on how
aggressively the Fed may slash interest rates at its next policy
meeting on Jan. 29-30.
"There is even speculation about a 75-basis-point cut,"
Klude said.
On the earnings front, Merrill Lynch reports fourth-quarter
results ahead of U.S. trading hours and markets will focus on
the extent of subprime-related writedowns.
Citigroup expects a $15 billion fourth-quarter write-down at
Merrill.
FOOD RETAILERS NOURISH GAINS
Along with financials, shares in food producers, such as
Nestle <NESN.VX> and Associated British Foods <ABF.L> as well as
retailers, like Tesco <TSCO.L> and Delhaize <DELB.BR> drove the
overall European market higher.
AB Foods, the Silver Spoon sugar maker, said it met
expectations by increasing first-quarter revenue 13 percent,
driven by budget clothing chain Primark.
Its shares rose 7.4 percent and were among the top gainers
in the UK's FTSE 100 index <>, which was the strongest
performer among European indexes, rising 1 percent.
British Land <BLND.L>, Segro <SGRO.L> and Brixton <BXTN.L>
rose between 5 and 10 percent each and added to the FTSE's
strong performance after Morgan Stanley upgraded its rating of
UK property stocks to "attractive" from "cautious".
Belgian supermarket group Delhaize, which makes most of its
sales in the United States, rose almost 4 percent after posting
an expected fall in fourth-quarter revenues, and said it expects
to ride out any U.S. economic downturn.
Germany's DAX index <> added 0.8 percent and France's
CAC 40 <> gained 0.7 percent.
A major decliner was Novartis <NOVN.VX>, falling 2.6
percent, after the Swiss drugmaker's fourth-quarter profits
plummeted 42 percent and fell far short of forecasts.
(Editing by Sue Thomas)
