European shares extended the previous session's strong gains in choppy trading today, led by cyclical stocks, with investors nervously waiting to see if the US Federal Reserve announces further stimulus measures to support the economy.
The Fed concludes a two-day policy meeting later in the day.
Some investors expect the central bank will extend its bond-buying programme, dubbed Operation Twist, in which it sells bonds with maturities of three years or less and buys securities with maturities of six years and longer.
The programme, aimed at pushing down longer-term interest rates to shield the still-fragile US economy, expires this month.
Analysts said recent poor data raised hopes the Fed would adopt further monetary stimulus measures to support the economic recovery, although some investors believed the central bank might leave the policy unchanged today and announce a fresh round of quantitative easing in its next meeting.
"Operation Twist is more likely than any measures in terms of printing new money or a further round of quantitative easing, but with bond yields as low as they are at the long end, I don't see that having much economic significance," Gerard Lane, strategist at Shore Capital, said.
At 10.19am, the FTSEurofirst 300 index of top European shares was up 0.1 per cent at 1,010.52 points after surging 1.6 per cent to a one-month high in the previous session.
Graham Bishop, equity strategist at Exane BNP Paribas, said shares could trim recent strong gains if the Fed failed to announce any fresh measures, but the drop was seen limited as there were plenty of investment opportunities.
"But if we see some positive action from the Fed, that will be the start of a wider move in equities. It will signal that they are likely to do more in terms of quantitative easing," he said and added: "Directionally, we are bullish on equities and see a 15 per cent upside potential by the year end."
Defensive shares lost ground today, with the Stoxx Europe Food and Beverages index falling 1.3 per cent to top the losers' list. On the other hand, cyclical shares such as banks, up 1.2 per cent, were in demand.
Analysts said there was a case for central banks to launch supportive measures to boost the pace of economic recovery and that could happen sooner, rather than later.
Minutes to the Bank of England's June 6th-7th policy meeting showed today that it is on the verge of approving another round of monetary stimulus, with governor Mervyn King supporting an extra £50 billions of gilt purchases.
Société Génerale said in a note that investors should take profits on the strong gains in US equities, switching instead to Britain and even possibly the euro zone.
It increased exposure to Europe-ex UK to 7 per cent from 5 per cent, though still staying underweight, while halving the exposure to US to 14 per cent, in the quarterly review of its multi-asset portfolio.
Reuters
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