(MENAFN- AFP) European stocks rose for the first time on Tuesday since Britain's shock vote to quit the EU and the pound rebounded as investors cautiously returned to the markets which remained jittery.
Trading floors appeared to have put the initial panic of Brexit behind them, picking up bargains after two days of heavy losses.
But analysts said the financial markets were still crying out for clarity from the British government and leaders in the European Union on the way forward.
"Today's rebound is likely just investors searching for the lows," Spreadex analyst Connor Campbell told AFP.
"As none of the chaos induced by last Friday is anywhere near going away: the country is still without its next prime minister, the Labour party is in disarray, and the actual process to exit the EU has not even begun."
The outcome of the June 23 referendum also caused an earthquake in British politics, forcing Prime Minister David Cameron to resign and leaving opposition Labour leader Jeremy Corbyn fighting for his political life.
Cameron later meets European leaders keen for Britain to expedite its EU exit.
- 'Political vacuum' -
Despite all the uncertainty, however, "the panic is behind us", said Christopher Dembik, a Saxo Banque economist.
London's benchmark FTSE 100 surged 2.5 percent, while the CAC 40 in Paris was 2.7 percent ahead and Germany's DAX rose 2.3 percent.
World stock markets had plunged on Monday, extending Friday's dizzying losses which saw $2.1 trillion wiped off international equities on the heels of the Brexit decision.
A day after sliding to a three-decade low, the pound began a rebound in Asia trading and stood at $1.3343 at around midday.
"The political vacuum in Westminster continues to suck sterling downwards," Moneycorp dealers said in a note to investors.
"Although off the lows of Monday evening the pound has lost ground to every other major currency."
And further falls for the pound are on the cards, analysts said.
"It might look very attractive to buy a major currency which has fallen by more than 11 percent in two trading days and is currently standing at its lowest levels in more than three decades," said Hussein Sayed, chief market strategist at FXTM in London.
"However, it might not be the case that sterling has reached its bottom just yet," he added.
- Bonds haven -
British goverment bond prices also fell after ratings agencies SP Global Ratings and Fitch both cut their ratings for the United Kingdom's sovereign debt.
Investors switching back into shares also helped bring the yield on the benchmark 10-year government bond, or gilt, off recent lows.
German bond yields, however, remained in negative territory as investors seeking a safe haven investment away from the British turmoil favoured the solidity of German sovereign bonds, also known as Bunds.
"The current environment is supportive for Bunds," said fixed-income strategists at UniCredit. "A period of uncertainty is likely to keep growth and inflation subdued."
- Asia leads way -
Asia led the bounce earlier, with analysts pointing to traders having started to bet on a fresh round of stimulus to mitigate the effects of Britain's decision to leave the EU.
Regional markets mostly closed higher after beginning the day deep in the red, as uncertainty over the vote revived selling after Monday's surprise rise in Asia.
Reports said Japan's prime minister had been urged to unveil economy-supporting measures, while South Korea's central bank unveiled a $17 billion injection and lowered its growth outlook for the country.
Tokyo ended up 0.1 percent, having fallen two percent in the morning, while Shanghai recovered to end 0.6 percent higher.
Hong Kong bucked the trend to end slightly lower because of its exposure to Europe-linked companies.
S&P Global Ratings credit analyst Terry Chan wrote that he saw limited long-term damage to Asia.
"Brexit's market impact is likely to be significant in the near term, particularly in terms of stock market and currency volatility," he said.
"The medium-term impact on Asia-Pacific markets, however, is likely to be limited as investors make decisions based more on economic and financial fundamentals rather than just sentiment."
- Key figures around 1015 GMT -
London - FTSE 100: UP 2.5 percent at 6,129.68
Paris - CAC 40: UP 2.7 percent at 4,091.13
Frankfurt - DAX 30: UP 2.3 percent at 9,479.66
Eurostoxx 50: UP 2.8 percent at 2,773.76
Tokyo - Nikkei 225: UP 0.1 percent at 15,323.14 (close)
Hong Kong - Hang Seng: DOWN 0.3 percent at 20,172.46 (close)
Shanghai - Composite: UP 0.6 percent at 2,912.56 (close)
Pound/dollar: UP at $1.3343 from $1.3228 Monday
Euro/dollar: UP at $1.1095 from $1.1022
Dollar/yen: UP at 102.31 yen from 101.99 yen
New York - DOW: DOWN 1.5 percent at 17,140.24 (close)
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