European stock markets rallied Tuesday following gains in Asia and overnight on Wall Street, although gains were capped by weak German data and lingering fears about a return to recession.
Analysts said that sentiment could quickly reverse direction, noting that investors again piled into safe-haven gold amid worries for the global economy, sending the precious metal above $1,900 an ounce for the first time.
London's FTSE 100 index of leading shares was up 0.98 percent at 5,145.42 points in midday deals, Frankfurt's DAX 30 gained 1.50 percent to 5,555.73 points and in Paris the CAC 40 jumped 1.49 percent to 3,096.88.
European markets closed mostly higher Monday after plunging late last week on fears of a fresh global recession and on heightened tensions surrounding the eurozone debt crisis.
"The FTSE is on track for a second day of modest gains after a good trading session in Asia overnight but as recent weeks have shown, it wouldn't take much to derail this rally," said Spreadex trader Christopher Purdy.
"With gold breaching the $1,900-level it appears that equity markets have not yet won back the confidence of most investors and volumes remain anaemic."
European stocks meanwhile lost some early momentum on news that German investor confidence slumped in August for a sixth month running and to levels last seen in late 2008.
The closely watched ZEW economic expectations index fell a whopping 22.5 points to stand at minus 37.6 points, far below the indicator’s historical average of 26.2 points. In July, it had slipped by just 6.1 points.
Asian stock markets closed higher on Tuesday thanks to bargain-hunting and a positive lead from Wall Street, while Japanese shares were supported by a stable yen-dollar, traders said. The euro was up against the dollar in London deals.
Sentiment was also given a slight lift by better-than-expected preliminary manufacturing activity data from China that raised hopes a feared hard landing in the world's number two economy was less likely.
In Europe, Switzerland's biggest bank UBS on Tuesday announced plans to slash 3,500 jobs to save some 2.0 billion Swiss francs (1.8 billion euros, $2.5 billion). In reaction, UBS shares won 1.99 percent to 10.74 Swiss francs.
British oil and gas explorer Cairn Energy climbed 0.76 percent to 291.9 pence after announcing a return to profit during the first half of 2011 as the company quadrupled revenues on higher oil prices and increased production.
Cairn added it was seeking exploration opportunities in Lebanon.
London-based brewer SABMiller meanwhile rose 1.47 percent to 2,074.5 pence after the company's takeover target, Australian beer giant Foster's, said it would return more than Aus$500 million ($519 million) to shareholders.
It comes after Foster's last week urged its shareholders to reject SABMiller's $10 billion hostile takeover bid, saying it was too low.