European shares rose on Wednesday extending the previous days gains in a volatile session as investors bought oversold stocks in a relief rally, after the U.S. Federal Reserve promised to keep interest rates unchanged for two years.
Trading was extremely choppy, however. The market had earlier pared gains before rising again, with Italian banks the stand-out fallers as traders said investors could be swapping their bank shares into Italian bonds.
UniCredit SpA and Intesa Sanpaolo fell 2.5 percent and 2.5 percent respectively.
A trader also said most buying was through more passive investments such as tracker indexes rather than an active management approach, suggesting there was still caution in the market.
"Today and maybe for the rest of the week we should have a technical reaction to the sell-off, but short-term-oriented traders and hedge funds are selling into this move already," Switzerland-based hedge fund manager Trung-Tin Nguyen at TTN AG said.
The market had initially been given a boost after the U.S. Federal Reserve said it would consider further steps to support the economy, helping to ease slowdown fears, while strong Chinese export growth also helped sentiment.
By 0923 GMT, the pan-European FTSEurofirst 300 index of top shares was up 0.9 percent at 956.75 points, having been up as much as to 965.05 earlier after gaining 1.2 percent in the previous session, halting a 20 percent dive over 2-1/2 weeks.
The sell-off, caused by worries about a global economic slowdown, fears of contagion in the euro zone and a U.S. credit rating downgrade, has led the index to fall into "oversold territory".
The index 14-day relative strength index (RSI) has fallen to as low as 15 in recent days, a level not seen since January 2008. An RSI of 30 and below is considered oversold.
Analysts said the relief rally was only a technical move from oversold conditions.
"Yes, markets do look cheap, however, we could have years and years of low growth to pay back our debts," Louise Cooper, markets analyst at BGC Partners, said.
ReutersLast Mod: 10 Ağustos 2011, 13:31