Autos drive gains in European shares

* Autos feature among top gainers

* UBS gains after announcing cuts

The European auto sector was among the biggest gainers,up 1.5 percent. The economically-sensitive sector has lost more than 28 percent this month,on worries that slowing global growth will hurt the export prospects of companies such as Germany’s BMW .

An upgrade to add from neutral at WestLB helped BMW rise 2.2 percent.

The flash Purchasing Managers’ Index (PMI),designed to preview China’s factory output before official data is released,edged up to 49.8 in August from July’s final reading of 49.3 — showing that while the pace of growth is slowing,it remains robust.

At 1109 GMT,the pan-European FTSEurofirst 300 index was up 1.2 percent at 927.51 points after rising 0.8 percent on Monday. Volume was low,at around a third of the daily average for the past 90 days.

The index is still down more than 17 percent in 2011 so far on worries that major economies may go into recession,and about the euro zone debt crisis.

Strategists said valuations were very attractive.

Things got a bit overdone,not just oversold. At some point low valuations will lead to higher returns,said Philip Isherwood,European equities strategist at Evolution Securities.

Dividend yields are higher than bond yields: you buy into that,you don’t sell it.

Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 9,against a 10-year average of more than 13.

Miners were another beneficiary of the news from China,the world’s biggest metals consumer,though the Stoxx Europe 600 Basic Resources Index gave up best levels of the session and was up 0.7 percent at midday.

Across Europe,Britain’s FTSE 100 rose 1.2 percent,Germany’s DAX rose 1.5 percent and France’s CAC40 rose 1.7 percent.

VOLATILITY FALLS

Appetite for riskier assets such as equities grew,with the Euro STOXX 50 volatility index ,one of Europe’s main barometers of fear,dropping 6.9 percent.

Corporate results also boosted shares. Swiss chocolate maker Lindt & Spruengli rose 6.7 percent after reporting profits up by almost a third and maintaining its sales growth outlook for the year.

Any data that just hints that the world is not ending is going to be well received by the market. We had better-than-anticipated Chinese factory data overnight and some of the corporate results this morning were also good,said Ian Richards,European equity strategist at RBS.

Banking stocks rose as investors felt a recent sell-off was overdone. Barclays was up 2.7 percent,with its price-earnings ratios for 2011 and 20012 having fallen to 5.3 and 3.9 respectively,according to Thomson Reuters Datastream. The stock has lost almost half its value in the past three months.

Swiss bank UBS AG rose 2.3 percent after saying it planned to slash around 3,500 jobs as it seeks to shave some 2 billion Swiss francs from annual costs by the end of 2013.