European stocks rose on Europe optimism

Financeroll – European stock index futures rose on Thursday, after short covering and value hunting lifted Asian shares on optimism that euro zone leaders are acting to aid the bloc's financial sector and U.S. data suggesting the economy could avoid recession.

An easing of risk aversion, after an intensive sell off earlier this week on fears that Europe's debt problems could trigger a new global financial crisis, helped boost commodities and saw Asian credit markets tighten sharply.

MSCI's broadest index of Asia Pacific shares outside Japan rose 3.3 percent, recouping more than half the steep losses made this week and moving away from a two-year low hit on Tuesday. The Nikkei share average rose 1.7 percent, snapping a four day losing streak in a short covering rally when investors realize gains by buying back borrowed stock they had previously sold in a bet on falling prices with commodity and tech sector shares in demand.

Hong Kong shares also rose from oversold conditions as investors covered short positions, propelling strong gains in several China-related names that have been among the most heavily shorted in the last few sessions. The Hang Seng Index .HSI jumped 4.7 percent.

But a disappointing start for China's largest listed brokerage Citic Securities, which fell as much as 10 percent on its Hong Kong debut, highlighted that investor confidence has not fully recovered.

Overall market volatility as measured by the VIX index. Wall Street's so called "fear gauge," fell 7 percent to 37.81 on Wednesday, down sharply from this week's peak of 46.88, lending support to investors cautiously putting some risk back on in the near term. The VIX has traded in a 30-48 range after breaking higher in August, and failures to test the highs this week may raise the prospect of a swing lower in the near-term. A clear break in either direction would indicate the next major move.

Futures for the Euro STOXX 50, Germany's DAX and France's CAC-40 were 0.7-0.9 percent higher. Asian credit markets reflected easing strains, with the iTraxx Asia ex Japan investment grade index narrowing by about 10 points after a sharp widening at the start of this week.

Investors were likely to remain cautious about whether the market relief would be sustained, ahead of key events including the European Central Bank's policy meeting later on Thursday, the last meeting to be held under the presidency of Jean Claude Trichet, and Friday's U.S. non farm payrolls. The ECB was expected to hold rates at 1.5 percent and restore long term lending to banks, preparing the ground for a rate cut before the year end. The euro was steady around $1.3350 ahead of the ECB meeting, well off a nine month trough of $1.3144 struck this week

German Chancellor Angela Merkel said on Wednesday that Berlin was ready to recapitalize its banks if needed, adding some more reassurance following an agreement on Tuesday by European finance ministers to safeguard banks in the face of mounting concerns about a Greek default. Further adding to positive sentiment was data showing growth in the U.S. service sector stood steady in September and private hiring picked up, suggesting the economy was not yet slipping into recession. [RTR/FR]