European stocks steadied on Thursday,halting the previous session's tentative rebound as investors waited to see if the European Central Bank would signal a change in policy to support the ailing euro zone economy. The market was also hesitant ahead of US President Barack Obama's speech to Congress during which he is expected to propose $300 billion in tax cuts and government spending as part of a job-creating package. At 0753 GMT,the FTSEurofirst 300 index of top European shares was down 0.01 per cent at 931.55 points,after gaining 3 per cent on Wednesday in low volumes and recovering from a 2-year closing low hit earlier in the week. We've reached extremely gloomy valuation levels on equities,with price-to-earnings ratios and dividend yields at levels not seen in the past 25 years,except during the 2008-2009 crisis,said Regis Begue,head of equities at Lazard Freres Gestion,which has 11 billion euros ($15.4 billion) under management. A bank like BNP Paribas trades at four times expected earnings for 2012,while in our worst-case scenario for next year,we get a price-to-earnings ratio of 7-8. At these levels,European stocks are pricing in the breakup of the euro zone. Banks gained ground,with BNP Paribas up 4.3 per cent,Societe Generale up 3.2 per cent and Banco Santander up 1.9 per cent. Investors expect the ECB to halt its interest rate rise cycle to help revive the struggling euro zone economy,and any hint at a rate cut in the coming months could bring relief on the equities market. The interest rate decision is due at 1145 GMT,while ECB President Jean-Claude Trichet's news conference is due at 1230 GMT. It will also be closely watched for insight into the bank's bond-buying programme. While some analysts appear to be ruling out an early rate cut it would be no surprise if (Trichet) indicated the possibility of an easing of monetary policy in the next couple of months,especially as the likelihood of an improvement in the economic outlook appears unlikely given the current economic backdrop,CMC Markets analyst Michael Hewson wrote in a note. Shares in peripheral euro zone countries were outperforming on Thursday,with Spain's IBEX up 1.1 per cent and Portugal's PSI 20 up 1 per cent.The Euro STOXX 50 volatility index known as VSTOXX index,one of Europe's main barometers of anxiety,remained above the key level of 40,signaling high investor aversion for risk.
