European shares climb back to summer highs

rally seeking to cover their positions while those who had bet on even bigger gains scrambling to increase the chances of a win.
The pan-European FTSE Eurofirst 300 index rose as high as 1 105,51, its strongest since July, before trimming gains slightly to trade up 0,2 percent at 1 104,73.
The index added 2,4 percent since the start of last week, on track for its best run since early February.
The narrower Euro STOXX 50 index of eurozone blue chips was up 0,2 percent at 2 599,06, after climbing as high as 2 603,28, its strongest since August.
The rally has taken the index into overbought territory on the seven-day relative strength index (RSI), but technical analysts said it was too soon to call an end to the gains.
“There has been quite an impressive rally. We are looking for a potential near-term peak at 2 610-40.
“But throughout this week, we have so far posted net up days, so there is no sign of selling entering the market.
“I wouldn’t go short yet,” Anders Soderberg, technical strategist at SEB, said.
Implied volatility on the Euro STOXX 50, a crude gauge of risk aversion, fell to 11-month lows. Traders said the most open interest on options expiring on Friday was focused at the 2 600 level on the Euro STOXX 50, with investors likely to work hard in both directions to try and make sure they do not end up on the wrong side of the bet.
A run of stronger US data has played a key part in supporting risk appetite at a time of recession in Europe, so equities will also be paying close attention to US.
“The higher the exposure to US and emerging markets, the higher the probability to outperform (for equities),” Andreas Huerkamp, equity strategist at Commerzbank in Frankfurt, said, adding that for the Euro STOXX 50 such exposure was lower than for some other indexes, such as Germany’s DAX.
“In the short term (the Euro STOXX 50) could rise further maybe to 2 700 but at the end of the year we have a target of 2 400.”
Underlining the importance of exposure to global growth, Norwegian oilfield engineering group Subsea 7 was the top FTSE Eurofirst gainer, up 3,8 percent after announcing a record backlog last week as it surprised investors with share buyback plans and a special dividend.
European autos, however, sold off on concerns about domestic demand.
UBS said there was a “slight upside risk” to its top-down forecast for European earnings per share (EPS) to fall 5 percent this year after its economists took a slightly more optimistic view on the euro zone economy.
They now expect it to contract 0,4 percent this year, rather than 0,7 percent.
“Given our GDP tweak and slightly higher forecast EPS for the US, European earnings may end 2012 closer to flat.
“Bottom-up consensus estimates of plus 5,9 percent for 2012 and plus 11,4 percent for 2013 are still too high, in our opinion,” UBS analysts said in a note. — Reuters.