LONDON (Reuters) - Britain's FTSE 100 recovered some ground on Tuesday as investors took advantage of the recent sharp sell-off in equities to pick up beaten down banking and mining stocks.
The benchmark index was up 25.63 points, or 0.5 percent, to 5,778.44 by 1059 GMT, after a 1.6 percent fall on Monday.
The index has shed 5 percent over the last eight trading days as worries over the potential for default among some euro zone countries and in the U.S. hit appetite for riskier assets.
Investors on Tuesday tentatively switched funds out of safer assets such as UK government bonds, which eased away from last week's eight-month highs, and back into equities.
"Markets have probably swung too far...There are opportunities," Philip Poole, global head of macro investment strategy at HSBC Global Asset Management, said, adding the risk-on risk-off environment is likely to last for the rest of the summer.
"For me the positive themes we'll see not just in the short term but over the next 10 years or so will mostly be coming out of the emerging world where you don't have the leverage problem, where economies will be growing mostly on the back of domestic demand."
Miners, which have massive exposure to demand from the developing world, bounced higher with Merrill Lynch arguing gold equity plays look particularly cheap given the sharp rise in the precious metal.
"Despite the rising price of bullion (near all time highs of over $1,600 an ounce), gold equities, particularly in Europe, have underperformed the yellow metal," the broker said in a note, keeping its "buy" rating on Randgold.
"With gold stocks trading near historical lows on a range of valuation metrics, we believe there is compelling scope for a catch-up trade."
Johnson Matthey, the world's largest supplier of catalytic converters, said its first-half performance would likely be significantly ahead, after a 19 percent rise in first-quarter profit.
BANKS BOUNCE
With analysts questioning the credibility of the European bank stress tests and concerns over lenders' exposure to the region's debt problems, banks have been hit particularly badly in recent days.
Barclays and Lloyds Banking Group rose by up to 3.9 percent, having been among the top fallers on Monday.
Bill McNamara, a technical analyst at Charles Stanley, said the FTSE 350 banking index recently broke below its two-year support level at around 4,330 which presented a buying opportunity, but warned current gains might be short-lived
"All of these stocks now look relatively oversold and that fact might contribute to a minor trading bounce," he said
"However, such is the downward momentum in the sector right now that there is simply no compelling reason to get involved on the long tack.
U.S. peers Goldman Sachs Group Inc and Bank of America Corp are due to report results on Tuesday.
BSkyB added 1.9 percent as JP Morgan raised its price target to 815 pence on the satellite broadcaster ahead of results due on July 29, saying it expected resilient operating results, with higher potential cash returns.
The British pay-TV company's shares have fallen sharply since News Corp withdrew its bid in the wake of the phone hacking scandal engulfing Rupert Murdoch's organisation.
On the downside, real estate investment trusts suffered with British Land off 1.2 percent as Goldman Sachs cut its rating to "neutral" from "buy" on valuation grounds.
The same broker removed Land Securities, down 0.1 percent, from its conviction "buy" list despite an upbeat first-quarter update.
Land Securities said it was stepping up its activity in retail development to capture growing demand for floor space from food and fashion retailers, while the outlook for London developments remains attractive.
U.S. stock index futures pointed to a higher open on Wall Street on Tuesday, with June housing starts data scheduled for release at 1230 GMT.
U.S. earnings highlights on Tuesday include Apple Inc and Yahoo! Inc.
