Europe's Markets Rise After Italian Bond Auction

(REUTERS) -- European shares rose on Tuesday as short-term traders helped boost the market following good demand at an Italian bond auction despite soaring borrowing costs, while BASF rose after lifting its sales target.

German chemical company, BASF, up 2.1 percent, was one of the best performers in Europe after it increased its 2020 sales target due to demand from the emerging markets, initially helping the German DAX to outperform other exchanges.

Other exchanges such as the French CAC, however, caught up to the German DAX after sentiment improved following an Italian bond auction which sold 7.5 billion euros of three- and 10-year government bonds, close to the upper end of its target range.

But yields on the three-year paper jumped to nearly 8 percent - a level which is not considered sustainable over time - while yield for the 10-year bonds was 7.56 percent.

The auction may be reasonably covered, but paying way over 7 percent is not great and is not sustainable for Italy, said Richard Batty, strategist at Standard Life Investments, part of the Standard Life Group, which administers $305.94 billion of assets.

Traders said the gains were on short-term investors rather than long-term players as the fundamental situation in the euro zone had not changed.

The bounce is on fast money (hedge funds, short-term investors) in low volume and in our minds it is not really sustainable when you still have an absence of a proper policy response to the euro zone crisis, Batty said.

Banks, which have been a barometer of investor sentiment in the euro zone debt crisis due to their exposure to the region's sovereign debt, which initially jumped after the auction reversed gains, with the STOXX Europe 600 Banks index down 0.3 percent.

Giles Watts, head of equities at City Index, said traders were beginning to get nervous and were beginning to take some money off the table heading into the U.S. open, with AMR Corp , the parent company of American Airlines, filing for voluntary Chapter 11 bankruptcy protection one factor.

By 1235 GMT, the pan-European FTSEurofirst 300 index of top shares was up 0.4 percent at 944.82 points in choppy trade, having been as high as 948.13 points and as low as 932.53.

The index rose above a key resistance level at 940.75 points, a 50 percent Fibonacci Retracement from its September low to its October high which it had dipped under earlier after closing slightly above it on Monday.

The next resistance level was seen at the 38.2 percent Fibonacci Retracement level at 961.45 points.