Stocks rebound, ignoring decline in Chinese markets

LONDON (Reuters) - European stocks snapped a five-day losing streak on Tuesday, with merger activity and earnings news lifting major markets by more than 1 percent, as investors shrugged off another fall in Chinese stocks and Brent oil's slide to a six-month low.

The rebound in Europe looked set to extend to the United States. Futures markets pointed to a rise of more than 0.5 percent on Wall Street.

Britain published the first snapshot of second quarter economic activity of any G7 country earlier on Tuesday, reporting gross domestic product grew 0.7 percent, up from 0.4 percent in the first quarter.

The U.S. Federal Reserve begins its two-day policy meeting later. No change in interest rates is expected, so attention will focus on whether Fed chair Janet Yellen signals September or December as the most likely date for a rate increase.

"For me, China is a short blip rather than a real slowdown. What we are hearing from company management is pretty buoyant, even if we see the dramatic impact on stock prices and on the wealth effect," said Ingo Speich, portfolio manager at Union Investment in Frankfurt.

"The earnings outlook in the euro zone is rising compared to the U.S. and companies are reporting pretty decent numbers," he said.

At 1100 GMT, the FTSEuroFirst 300 index of leading European shares was up 1.2 percent at 1,548 points <.FTEU3>.

Germany's DAX <.GDAXI> was up 1.4 percent at 11,211 points, France's CAC 40 <.FCHI> up 1.2 percent at 4,988 points and Britain's FTSE 100 <.FTSE> up 1 percent at 6,563 points.

Shares in Kering surged 6.6 percent after Gucci, the flagship brand of the French luxury and sportswear group, posted a 4.6 percent rise in underlying second-quarter sales.

And RSA Insurance Group jumped 11 percent after Zurich Insurance said it was considering a bid for the British group, which has a market capitalization of 4.4 billion pounds ($6.9 billion).

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> ended the day 0.2 percent higher after falling nearly 1 percent early on, touching its lowest level since July 9.

Tokyo's Nikkei <.N225> ended 0.1 percent lower.

The main China indexes fell again, although by nowhere near as much as Monday's 8.5 percent plunge. The Shanghai market benchmark <.SSEC> closed 1.7 percent lower.

After hitting a peak in early June, China's main indexes dropped by a third in less than a month, rebounded by a quarter, then saw their biggest one-day decline since 2007 on Monday.

Authorities in Beijing said they would redouble their efforts to shore up the market, something that could help soothe nerves in Western markets as well.

DOMESTIC FOCUS

Oil remained under pressure. Brent crude futures hit a new six-month low after Monday's Chinese stock market crash bred worries the world's biggest energy consumer may cut back demand, leading to a global supply glut. [O/R]

Brent fell as much as 2 percent to $52.28 , a level not seen since February 2. U.S. crude was down 1 percent just below $47 a barrel, its lowest since late March.

The price of copper , heavily influenced by demand from key consumer China, recovered from Monday's six-year low and was up 1 percent at $5,245 a tonne on the London Metal Exchange.

The broader Thomson Reuters CRB commodities index <.TRJCRB> also hit a six-year low overnight.

In currency markets, the dollar rose against many of its key rivals, including the euro and yen, as traders bet that the first U.S. rate hike in almost a decade is still likely to come in September.

"Undoubtedly the Fed has had its eye on China ? and the other on Greece ? when it comes to watching overseas developments," said Steve Barrow, head of G10 strategy at Standard Bank.

"There's been some concern that either could blow away any thoughts of lift-off this year, but we very much doubt it. We think the Fed will stay focused on the domestic economy and will start to lift rates in September."

The euro was down 0.5 percent at $1.1035 , almost a full cent down from Monday's two-week high of $1.1129, and the dollar was up almost 0.5 percent against the yen at 123.75 yen .

Investors will also be looking to U.S. earnings on Tuesday and economic data releases, including Markit PMIs for July and CaseShiller house prices for May.

Bond yields edged higher, with the 10-year U.S. Treasuries yield up 2 basis points at 2.25 percent and UK and German yields up around 1 basis point.

(Reporting by Jamie McGeever; Additional reporting by Lionel Laurent; Editing by Larry King; To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub)

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