European shares end up 4%

LONDON — European shares rose more than 4 per cent on Tuesday, their best one-day gain since late 2011, as a rate cut in China fuelled a recovery from a bruising 48-hour sell-off.

Battered mining and technology stocks were among the big winners when China moved to support its stuttering economy and a plunging stock market that had sent shockwaves around the globe.

"We think the corner in markets has been turned," Bank of America-Merrill Lynch strategists wrote in a note to clients. "We would acknowledge, though, that this sell-off has done some serious damage to markets and any recovery is likely to take time and be volatile."

The pan-European FTSEurofirst 300 index, which slumped 5.4 per cent on Monday, closed up 4.2 per cent. The blue-chip Euro STOXX 50 index rose 4.7 per cent.

German chipmaker Infineon rose 10 per cent while miner Antofagasta gained 8.7 per cent.

Swiss agricultural chemicals company Syngenta was up 5.9 per cent after a source said that Monsanto had sweetened a takeover offer.

World financial markets have been rattled by a sell-off in the Chinese stock market after the devaluation of the yuan this month.

Some investors took heart from a rise in the German IFO  business climate index for August and said that domestic demand across Europe was showing broadly positive signs.

"There are solid reasons to be worried about the global growth outlook, given emerging markets and systemic fears in China," said Valentijn van Nieuwenhuijzen, head of multi-asset strategy at NN Investment Partners. "However, it is a risk, not yet a reality, that this will spread to the developed world. The IFO number this morning... shows domestic demand is holding up quite well so far," he added.

Goldman cuts equities position

Goldman Sachs' strategists cut their position on equities to “neutral” from “overweight” because of the drop in China, though they did not expect the sell-off to cause a global recession, citing signs of economic growth in the United States and Europe.

"In the meantime, we recognise the shift in sentiment that is being reflected in recent price action both in equities and, via falling inflation expectations, in bonds," they wrote in a note.