* FTSEurofirst 300 index up 0.3 pct after topsy-turvy day
* Some banks add to previous session's gains, but HSBC drops
* Auto shares rise on market talk of Peugeot-Renault merger
By Peter Starck
FRANKFURT, March 11 (Reuters) - European shares rose for the
second straight day on Wednesday as financials, led by Credit
Suisse <CSGN.VX>, added to the previous day's steep gains while
defensives such as British American Tobacco <BATS.L> sold off.
The FTSEurofirst 300 <> index of top European shares
closed 0.3 percent higher at 692.65 points after a volatile
session that saw it gain as much as 1.9 percent and fall as much
as 1.4 percent.
The benchmark rallied more than 5 percent on Tuesday for its
biggest one-day percentage gain in three months.
In financials, Dexia <DEXI.BR> jumped over 30 percent,
Credit Suisse <CSGN.VX> rose 9.1 percent, Deutsche Bank
<DBKGn.DE> advanced 8.4 percent and AXA <AXAF.PA> put on 7.3
percent as the sector built on Tuesday's rally triggered by
Citigroup <C.N> Chief Executive Vikram Pandit saying the U.S.
bank was profitable in January and February.
But HSBC <HSBA.L> lost 6.3 percent on the last day investors
were entitled to the right to participate in the bank's $18
billion deeply discounted share sale.
Some fund managers sold the shares to manage the stock's
portfolio weighting or to raise money for the rights issue.
The DJ Stoxx bank index <.SX7P> added 1.3 percent but has
nevertheless lost more than 30 percent this year, clearly
underperforming the broader market, which is down some 17
percent after a 45 percent plunge in 2008.
The DJ Stoxx auto index <.SXAP> rose 2.9 percent, led by
French carmakers Renault <RENA.PA>, up 8.5 percent, and Peugeot
<PEUP.PA>, up 6.8 percent, with traders citing market talk of a
merger between the groups.
Renault denied the rumour while a spokesman for PSA Peugeot
Citroen declined to comment and an analyst said a deal between
the two was unlikely.
Philips Electronics <PHG.AS> climbed 5.9 percent after the
company sold its stake in Korea's LG Display <034220.KS> for 630
million euros.
MORE VOLATILITY
Strategists saw volatility remaining the name of the game.
"Markets are characterised by considerable uncertainties.
The risk of an investment in equities is above average," VP Bank
of Liechtenstein said in a note.
"We expect indexes to remain volatile and trade sideways."
Markus Reinwand, equity strategist at German bank Helaba,
said volatility tended to be particularly high close to trend
turning points.
"A number of indicators suggest that the downward move has
been exaggerated," Reinwand said.
Major indexes have fallen more than in previous post-World
War Two bear markets and investor pessimism and money parked in
cash deposits have risen to record highs, he said.
"In the past, such constellations were usually a precursor
of a distinct stock market recovery," Reinwand added.
Reuters polls of around 250 economists from Toronto to Tokyo
showed the first quarter of 2009 shaping up to be nearly as bad
for most leading economies as an already ugly end to 2008.
By 2010, unemployment is expected to have soared to a
10-year high in the euro zone, while 13 million people will be
jobless in the United States and 10 percent of the UK workforce
will be looking for work. [] []
Data published on Wednesday showed Britain's goods trade gap
with the rest of the world widened more than expected in January
and a much bigger than expected drop in manufacturing orders in
Germany, Europe's largest economy.
FALLING EARNINGS
"Any meaningful recovery in the euro area still seems to be
far away," Morgan Stanley said in a note on the German data.
"Equities will suffer in the second quarter on the release
of (companies') first-quarter losses," Frankfurt brokerage
Steubing said, also commenting on the plunge in German orders.
"The first quarter will be a disaster for corporate
earnings," Steubing said.
ING in a strategy note said it expects European earnings to
fall by 48 percent in 2009 and by a further 9 percent in 2010.
"In seeking to determine how much further equities can and
should fall, we think gauging the earnings cycle remains the
investor's best ally," ING said.
"The traditional rule of thumb suggests that equity markets
will hit a low two to three quarters in advance of the earnings
trough. If this rule still holds, the most likely time for the
start of sustainable rally will be sometime in the third quarter
of 2009," ING said.
Wednesday's European stock market losers were mainly to be
found among traditional safe-haven defensives such as British
American Tobacco, down 6 percent, telecoms group Vodafone
<VOD.L>, down 3.8 percent, and utility GDF Suez <GSZ.PA>, down
2.5 percent.
(Additional reporting by Martina Fuchs and Atul Prakash in
London; Editing by Mike Nesbit)
