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EUROPE MARKETS: European Stocks Rebound From Ukraine-led Selloff

03/04/2014 | 12:07pm US/Eastern
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By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets partly rebounded after a sharp prior-day selloff on Tuesday after tensions between Russia and Ukraine appeared to ease as Russian troops reportedly were called back to their bases and President Vladimir Putin stressed he wouldn't use military force yet.

The Stoxx Europe 600 index rallied 2.1% to close at 337.15, partly recovering from a 2.3% slide on Monday.

The sharp decline on Monday came after the crisis in Ukraine intensified over the weekend, as Russian President Vladimir Putin got parliamentary approval to launch a military intervention on the country's southwestern neighbor.

The move was condemned by western powers and U.S. President Barack Obama warned Russia could face costly sanctions unless it ends its occupation of Ukraine's Crimean region. On a visit to Kiev on Tuesday, U.S. Secretary of State John Kerry called the Russian moves in Crimea an "invasion" and urged Russia to talk to the Ukrainian government. Additionally, president of the European Council, Herman Van Rompuy, has scheduled an extraordinary meeting for EU leaders on Thursday to discuss the situation in the country.

Tensions appeared to ease on Tuesday, however, after Russian troops sent on surprise military exercises in western and central Russia reportedly were ordered to return to their bases. The drills began last Wednesday, and some of them were near the Ukraine border, which triggered some concerns that Russia was building up for a massive incursion.

Putin said in a televised press conference that he sees "no need yet" to send troops to Ukraine, but that the use of military forces remains an option in an "extreme case." The Russian President also stressed that Ukrainian parliament's move to oust former leader Viktor Yanukovych was "unconstitutional" and that the ousted president is still the legitimate head of Ukraine. Read: Putin: U.S. treats foreigners like lab rats

The combination of calling back troops and Putin's comments took some heat out of the crisis, spurring optimism in the stock market, with both European indexes and U.S. stocks rising.

Russia's MICEX index jumped 5.3% to 1,356.54, after tanking 11% on Monday.

Peter Garnry, head of equity strategy at Saxo Bank, said in a note that political and economic risks shouldn't deter investors from moving into Russian equities and that the country's stocks are looking "ridiculously cheap" at the moment.

"This song [of staying out of Russian equities] has been playing out for years now and while there is some truth to that, equities can become so cheap that you have to act despite a crisis and negative news headlines," he said.

Garnry pointed to two reasons for buying instead of selling. First, a war in Ukraine is likely to become too expensive for the parties involved and a diplomatic solution can therefore be expected. And second, Russia has a positive economic outlook with estimates for real GDP growth of 2% and 2.5% in 2014 and 2015 respectively. The best way to gain exposure to the "oversold" Russian equities is through the db x-trackers MSCI Russia Capped Index UCITS ETF , rather than by selecting individual stocks, he said.

Among other country-specific indexes in Europe, France's CAC 40 index gained 2.5% to 4,395.90, while Germany's DAX 30 index put on 2.5% to 9,589.15. The U.K.'s FTSE 100 index rose 1.7% to 6,823.77.

Shares of Ashtead Group PLC jumped 13% in London after the equipment-rental company reported a 54% rise in third-quarter pretax profit.

Shares of Glencore Xstrata PLC (GLCNF) put on 1.7% after the miner said it swung to a full-year loss, but that its closely watched adjusted earnings before interest and taxes rose 34%.

Banks were also rising after being hit hard in Monday's market rout. Shares of Société Générale SA advanced 3.4% in Paris, Commerzbank AG rose 4.9% in Frankfurt and Royal Bank of Scotland Group PLC (>> Royal Bank of Scotland Group plc) climbed 2.5% in London.

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Stocks mentioned in the article : Royal Bank of Scotland Group plc
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