Stocks up but gains might be capped over Greek fears

European stock index futures rose early on Thursday, pointing to a tentative recovery in equities following an almost uninterrupted 10-day slide, but gains could be capped as investors fret about Greece's political deadlock and disappointing Chinese trade data.

At 0632 GMT, futures for Euro STOXX 50, for Germany's DAX and for France's CAC

were up 0.6-0.8 percent.

Greek leftist leader Alexis Tsipras gave up his attempt to form a new government on Wednesday, pushing the debt-stricken country closer to its second election in a few weeks and prompting impatient European governments to withhold part of the latest tranche of rescue funds to be paid on Thursday.

Greek Socialist leader Evangelos Venizelos will make a last-ditch attempt to form a government, but chances are seen as slim that Venizelos can clinch a deal after both the conservatives and leftists tried and failed.

"The game certainly does appear to be changing with talk of a Greek exit now being openly discussed, something that would have been unheard of a year ago,"

Michael Hewson, senior market analyst at CMC Markets, wrote in a note.

Investors were also rattled by macro data out of China showing headline growth in imports unexpectedly stalled last month and exports were weaker-than-expected, raising doubts about the strength of the rebound in the world's second-biggest economy.

Annual growth in imports in April was just 0.3 percent, far below expectations for an 11 percent increase in a Reuters poll and also weaker than the 5.3 percent year-on-year rise in March.

European stocks dropped to a four-month low on Wednesday as mounting political uncertainty in Greece and fears over the Spanish financial system hit markets, with traders and analysts saying central banks might have to pump more liquidity into the system.

The euro zone's blue-chip Euro STOXX 50 index has tumbled 15 percent since mid-March. Spain's IBEX has plummeted 21 percent, hitting a three-year low on Wednesday on mounting worries over the country's ability to fix its banking system and deal with its debt pile.

The near two-month slide has dragged valuation ratios to levels not seen since mid-January, with the Euro STOXX 50 trading at 8.7 times 12-month forward earnings, with a dividend yield of 4.16 percent, well above 10-year Bund yields of 1.55 percent.

"European markets are still in a negative momentum, below their 50-day and 200-day moving averages. The risk is to see the indexes hitting their December lows, about 2 to 5 percent lower depending on the indexes,» Aurel BGC chartist Gerard Sagnier said.

"With the weak risk-reward ratios, it's better to stay neutral and sell into any rebounds towards the resistance levels,» said the chartist, who sees the Euro STOXX 50's next resistance levels at 2,265 points and 2,320 points.


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