LONDON - European shares rebounded on Tuesday as investors tried to take advantage of a drop in prices caused by geopolitical tensions and doubts about global growth.
Markets were encouraged by hopes of stimulus measures in China and by a growing consensus that a rift between the West and Russia was unlikely to get out of hand.
Bourses in London.FTSE, Paris.FCHI and Frankfurt.GDAXI opened around 0.9 per cent higher, bouncing after Monday's 1 per cent drop put the region's FTSEurofirst 300 index .FTEU3 on track for its worst month since June.
While equity markets were hunting for bargains, the euro at 1.3827, the pound at 1.6483 and the region's benchmark government bonds were little changed as they digested fresh data from the region's biggest economies.
Top of the list was German business sentiment data from Germany's Ifo institute. As expected, it dipped after this month's tensions with Russia over Ukraine.
In Britain, inflation data showed price increases had slowed, reinforcing views that the Bank of England would hold off on raising interest rates.
"The reason why the equity markets are doing well is a bit of a rebound from the recent sharp sell-off," said David Madden, a market analyst at IG index in London. "The euro has struggled a bit because of dollar strength more than anything, though I do think any strong sanctions slapped on Russia by the US and Europe or vice-versa would knock equities again."
The Group of Seven major industrialized nations warned Russia on Monday it faces additional economic sanctions if President Vladimir Putin takes further action to destabilize Ukraine.
"The fallout from Ukraine so far has been very limited," said Ramin Nakisa, a global macro strategist at UBS. "The politicians won't have a strong mandate for heavy sanctions."
In Asian trading, Japan's Nikkei .N225 had dropped 0.4 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dipped 0.2 per cent after a lackluster session on Wall Street.
Short-dated US Treasuries prices remained in focus after Federal Reserve chief Janet Yellen said last week that interest rates could rise early next year.
Two-year Treasuries, the most sensitive to interest rate changes, were steady at 0.4288 per cent in early European deals, after reaching a six-month high of 0.4650 on Monday. Money market futures were pricing in some possibility of a rate hike by spring 2015.