Fiat outperforms, European shares rebound
Carmaker Fiat may be moving towards a buyout and flotation of US unit Chrysler.
LONDON - European shares rebounded on Monday from sharp falls last week, with carmaker Fiat leading gainers on fresh signs that it may be moving towards a buyout and flotation of US unit Chrysler.
Nevertheless, some investors were still positioning for a market pullback over the coming months, on expectations that a possible tapering of US monetary stimulus measures could halt this year's global equity market rally.
The pan-European FTSEurofirst 300 index, which hit near five-year highs this month, was up 0.1 percent at 1,228.13 points in mid-session trading, while the euro zone's blue-chip Euro STOXX 50 index advanced 0.6 percent to 2,781.49 points.
Volumes, however, were likely to be thin with both the U.S and UK stock markets shut for public holidays.
Fiat topped the FTSEurofirst 300 with a 3.2 percent gain after the Wall Street Journal reported the Italian carmaker was in talks to secure financing for a buyout of Chrysler.
Analysts have speculated a buyout could then lead to a stock market listing for Chrysler, which would help cut Fiat's debts.
"The market thinks the story is heating up," said IG strategist Vincenzo Longo.
While many investors expect equity markets might correct in the short term, the longer trend remains positive, with equities offering better returns than bonds and cash.
"I think the medium-term trend is still bullish," said Hendrik Klein, who heads high-frequency trading and asset management firm Da Vinci Invest.
The FTSEurofirst is still up 8 percent since the start of 2013, despite last week's pullback, while the Euro STOXX 50 has risen 6 percent and Germany's DAX hit all-time highs this month.
Injections of liquidity and interest rate cuts by central banks to try and spur economic recovery have hit returns on bonds and pushed investors over to equities, driving the stock market rally.
Trading has become more cautious since US Federal Reserve chief Ben Bernanke signalled last Wednesday that the central bank could soon scale back stimulus measures, leading some investors to position for a market retreat over the next two months.
Cyrille Urfer, head of asset allocation at Swiss bank Gonet, said his firm had a computer programme that was currently buying up "put" options to bet on a minor market pullback.
"We don't see a major correction, but we're definitely a bit more cautious," he said.