* FTSEurofirst up 4 pct, led by miners on China growth hopes
* Construction shares rally; CRH up 16 pct at 3-week high
* Oil stocks draw strength from higher crude prices
By Peter Starck
FRANKFURT, March 4 (Reuters) - European shares advanced on
Wednesday as signs of economic recovery in China fuelled a rally
in mining, construction and energy stocks.
The FTSEurofirst 300 <> index of top European shares
closed 4 percent higher at 696.23 points, ending a three-session
losing streak which saw the benchmark sink to a 12-year-low
close on Tuesday.
The DJ EuroSTOXX50 index <> climbed 4.2 percent and
in the broader top-600 universe <>, rising stocks led
decliners by five to one.
"We have several reasons to believe that stocks are
bottoming," said Joost van Leenders, strategist at Fortis
Investments.
"Markets have fallen into severely oversold territory and
sentiment is extremely negative," he said.
"Secondly, while stocks have set new lows, credit markets
have held well above their November lows. Thirdly, expectations
about the economy and profits have become more bearish and are
more in line with reality. This should limit the number of
negative surprises," he added.
The basic resources sector index <.SXPP> rose 12.6 percent,
lifted by miners Rio Tinto <RIO.L>, up 14 percent, and BHP
Billiton <BLT.L>, up 12.9 percent, on the back of the price of
copper soaring nearly 7 percent to its highest in more than
three months.
Steel maker ArcelorMittal <ISPA.AS> gained 12.4 percent.
Citigroup upgraded the stock to "hold" from "sell" and ICAP
rated ArcelorMittal "buy", describing it as the "leader of the
pack" and arguing it would gain from infrastructure spend in
China.
The Chinese purchasing managers' index rose to 49.0 in
February -- the highest level in five months and the third
consecutive rise.
"Metal prices ... are benefiting from the outlook that
demand in China could recover soon," Commerzbank analyst Eugen
Weinberg said.
"Prime Minister Wen Jiabao may present new measures to
stimulate the economy at the annual meeting of the National
People's Congress starting tomorrow," he said.
CHINA SWF SEES OPPORTUNITIES
News that China will increase spending in areas such as
infrastructure lifted construction and building materials, up
8.3 percent on the sector index <.SXOP>, led by Irish CRH
<CRH.I>, which shot up 16 percent to a three-week high.
Crude oil prices <CLc1> rose 6 percent, supporting European
energy stocks such as Total <TOTF.PA>, up 8.9 percent,
StatoilHydro <STL.OL>, up 7.7 percent and Royal Dutch Shell
<RDSa.L>, up 6.3 percent.
Jesse Wang, chief risk officer at China's $200 billion
sovereign wealth fund, CIC, saw investment opportunities in
sectors such as basic necessities, resources and manufacturing.
While data out of China drew cheers, the latest economic
figures from Europe and the United States provided scant solace.
The euro zone's purchasing managers' index for the service
sector fell to a record low of 39.2 in February and the U.S.
Institute for Supply Management said its non-manufacturing index
dropped to 41.6 in February.
The level of 50 separates expansion from contraction.
The U.S. private sector cut 697,000 jobs in February,
according to the ADP Employer Services report.
Deutsche Bank saw risks that the U.S. economy could contract
by as much as 10 percent in the first quarter.
Measured by the S&P 500 index <.SPX>, U.S. equities were
nevertheless up 2.3 percent as Europe's stock markets closed.
Wall Street, too, fell to 12-year lows on Tuesday.
Across Europe on Wednesday, Britain's FTSE <> rose 3.8
percent, Germany's DAX <> added 5.4 percent and the French
CAC 40 <> put on 4.7 percent.
"It doesn't feel like a turnaround, but I wouldn't write it
off as just a dead-cat bounce either," said Neil Parker,
strategist at Royal Bank of Scotland in London.
Chartists said European stock indexes could fall further.
"Looking for the bottom is a pointless exercise at the
moment," said Nicole Elliott, a technical analyst with Mizuho
Securities. "I don't see that we are anywhere near that -- not
even vaguely near that, neither in time nor in price."
(Additional reporting by Brian Gorman and Atul Prakash in
London; Editing by Greg Mahlich)
