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Mining stocks lead European equity recovery
* FTSEurofirst up 0.7 pct, Euro STOXX 50 up 0.9 pct
* Equities recover after sharp fall on Thursday
* Fears over Italy, central bank help seen short-lived
* Mining stocks lead broad-based equity rally
By Sudip Kar-Gupta
LONDON, Feb 22 (Reuters) - European shares rebounded on Friday, with traders scooping up stocks such as miners on the back of earlier falls, on expectation that worries over Italy and an end to central bank stimulus would be short-lived.
The pan-European FTSEurofirst 300 index rose 0.7 percent to 1,159.98 points, recovering from a 1.5 percent fall in the previous session.
The euro zone's blue-chip Euro STOXX 50 index also rose 0.9 percent to 2,604.12 points, having fallen 2.3 percent in the previous session to a fresh 2013 low.
All European equity sectors were in positive territory, with the STOXX Europe 600 basic resources sector - which comprises major mining stocks - leading the way with a 1.5 percent rise.
Markets had fallen earlier this week over worries that the U.S. Federal Reserve may curb its monetary stimulus measures and on uncertainty over the results of elections next week in Italy, which has been hit hard by the euro zone's debt crisis.
However, Berkeley Futures associate director Richard Griffiths said investors were still using stock market falls to buy shares "on the dip" on expectations that any hurdles over potential issues such as Italy would be quickly overcome.
"The markets took a heavy dive earlier this week, but they're showing signs of a partial recovery," said Griffiths.
"The fact that traders are still buying on the dips shows that they're hoping that the global economic recovery will continue, although it will take time," he added.
Italy's FTSE MIB benchmark equity index also recovered from a 3.1 percent fall on Thursday to rise 1.1 percent.
Most investors expect a centre-left government headed by Pier Luigi Bersani and backed by current prime minister Mario Monti to win and continue with reforms to tackle Italy's debt problems.
However, a resurgence by former leader Silvio Berlusconi has caused growing doubts over the outcome, and has led many investors to avoid taking big positions on European equities ahead of the election result early next week.
Matthias Thiel, a market strategist at M.M Warburg & Co Thiel said failure to form a stable, reform-oriented government in Italy would lead his firm to review its positive stance on equities.
"Italy would be a specific example of what we mean by political risk. If there are signs that political risk materialises or the fundamentals get worse again, we would reduce our position," he said.
The majority of equity strategists and investors expect any market decline caused by worries over Italy to be relatively short-lived and minor, and for equity markets to hold onto their upwards trajectory going into late March and April.
The FTSEurofirst 300 index has risen more than 2 percent since the start of 2013.
However, BTIG equity strategist Nick Xanders said markets could remain volatile in the near-term and backed buying volatility options, with the Euro STOXX 50 Volatility index having hit a fresh 2013 high this week.
"Volatility is still cheap and the risks are still skewed to the downside," he said.
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