European shares hit their highest close in two weeks on Wednesday after Greek lawmakers approved austerity measures that are critical to the debt-laden country securing the next tranche of bailout funds.
The heavyweight banking sector, which has been hit heavily by the sovereign debt crisis in the euro zone's peripheral nations, pared session gains on profit taking after the vote.
The STOXX Europe 600 Banks index , which has fallen 20.8 percent since February, when worries intensified about the global recovery and the euro zone debt woes, finished up 1.6 percent at 181.95 points.
Technical analysts said support was seen at around 175 for the banks' index , its lowest level since July 2009 and a number it previously bounced off. Resistance was seen at 188, representing a 23.6 percent Fibonacci retracement from the index's high in February.
Greece's bank shares ended down 1 percent after trading up as much as 6 percent earlier.
The Greek parliament approved a five-year austerity package by 155 votes to 138, but a second vote is due on Thursday on specific budget and privatisation measures, and failure to pass the bill would hamper the release of a crucial 12 billion euro aid package in July.
"The market is expecting a pass tomorrow. Investors will be looking to see how much resistance the opposition has to the plans as it could impact future lawmaking processes," said Veronika Pechlaner, a manager on the 100 million euro Ashburton European equity fund.
"We think the market could bounce another 5 percent if things develop in the right direction, but if we see an uncontrolled Greek default I would not want to speculate what could happen to the market."
The Euro STOXX 50 volatility index , one of Europe's main barometers of sentiment, fell 13.1 percent, indicating a rise in appetite for risk. The FTSEurofirst 300 index closed up 1.7 percent at 1,098.71 points.
Analysts said the index would likely find support at 1,066, its year low reached in March after a heavy sell-off caused by the Japanese earthquake, but would face resistance at around 1,104, a level it has struggled to go beyond since mid-June, when euro zone ministers failed to agree on how to share the costs of a new bailout for Greece.
In a technical move, Ashburton recently invested in French banks like BNP Paribas , which has heavy exposure to Greek debt, in anticipation that banking stocks would rally, and Pechanler said she sees it in a trading range of 50 to 60 euros. BNP Paribas was up 1.7 percent.
"We have been underweight financials for a long time and do not like the risk-reward on a long-term basis, but we also know they can have a viscous bounce," she said. "Once they reach a particular trading range, you definitely start to consider them for a tactical trade short-term."
RISKS
Many economists said Greece could still default in the medium term and there were concerns on how the country could stick to a tight EU/IMF-imposed schedule to implement the harsh measures.
"I don't see how the current government can implement the required measures to meet the bailout conditionalities. So additional measures will have to be taken again, which creates a vicious circle for growth and an ever-rising debt," said Koen de Leus, strategist at KBC Securities in Brussels.
"At the end, everybody will be fed up, the protests of the population will even go louder, there will be a change of government, and Greece will default and restructure. But in the short term, a default has been avoided."
If Greece did default, many fear it could spark a Europe-wide crisis and credit market freeze similar to the Lehman collapse in 2008.
The heavyweight banking sector, which has been hit heavily by the sovereign debt crisis in the euro zone's peripheral nations, pared session gains on profit taking after the vote.
The STOXX Europe 600 Banks index , which has fallen 20.8 percent since February, when worries intensified about the global recovery and the euro zone debt woes, finished up 1.6 percent at 181.95 points.
Technical analysts said support was seen at around 175 for the banks' index , its lowest level since July 2009 and a number it previously bounced off. Resistance was seen at 188, representing a 23.6 percent Fibonacci retracement from the index's high in February.
Greece's bank shares ended down 1 percent after trading up as much as 6 percent earlier.
The Greek parliament approved a five-year austerity package by 155 votes to 138, but a second vote is due on Thursday on specific budget and privatisation measures, and failure to pass the bill would hamper the release of a crucial 12 billion euro aid package in July.
"The market is expecting a pass tomorrow. Investors will be looking to see how much resistance the opposition has to the plans as it could impact future lawmaking processes," said Veronika Pechlaner, a manager on the 100 million euro Ashburton European equity fund.
"We think the market could bounce another 5 percent if things develop in the right direction, but if we see an uncontrolled Greek default I would not want to speculate what could happen to the market."
The Euro STOXX 50 volatility index , one of Europe's main barometers of sentiment, fell 13.1 percent, indicating a rise in appetite for risk. The FTSEurofirst 300 index closed up 1.7 percent at 1,098.71 points.
Analysts said the index would likely find support at 1,066, its year low reached in March after a heavy sell-off caused by the Japanese earthquake, but would face resistance at around 1,104, a level it has struggled to go beyond since mid-June, when euro zone ministers failed to agree on how to share the costs of a new bailout for Greece.
In a technical move, Ashburton recently invested in French banks like BNP Paribas , which has heavy exposure to Greek debt, in anticipation that banking stocks would rally, and Pechanler said she sees it in a trading range of 50 to 60 euros. BNP Paribas was up 1.7 percent.
RISKS
Many economists said Greece could still default in the medium term and there were concerns on how the country could stick to a tight EU/IMF-imposed schedule to implement the harsh measures.
"I don't see how the current government can implement the required measures to meet the bailout conditionalities. So additional measures will have to be taken again, which creates a vicious circle for growth and an ever-rising debt," said Koen de Leus, strategist at KBC Securities in Brussels.
"At the end, everybody will be fed up, the protests of the population will even go louder, there will be a change of government, and Greece will default and restructure. But in the short term, a default has been avoided."
If Greece did default, many fear it could spark a Europe-wide crisis and credit market freeze similar to the Lehman collapse in 2008.
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