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Technip leads European share rebound in thin trade

Friday, 5 Oct 2012 | 8:08 AM ET

* FTSEurofirst 300 up 0.7 pct, Euro STOXX 50 up 1 pct

* Technip rises 2.5 pct after Mexico contract win

* Buy VSTOXX, sell VIX to protect against euro risk -SocGen

By Francesco Canepa

LONDON, Oct 5 (Reuters) - European shares rose in thin trade on Friday as investors bought into recent dips, with F rench oil services firm Technip

leading the pack after winning a contract in Mexico.

Technip shares rose 2.5 percent by 1121 GMT, having traded 80 percent of its average daily volume, after a consortium led by the group won a $2.7 billion engineering procurement contract in Mexico.

It topped gainers in oil & gas

, one of the best-performing sectors along with basic resources .

Investors bought into recent falls on expectations ongoing cash injections from the U.S. Federal Reserve would support equities, as well as the price of oil and metals.

The Fed announced an aggressive quantitative easing programme last month in a bid to shore up the U.S. economy and counter the effect of the euro zone debt crisis, strengthening stimulus efforts by major central banks around the world.

"The market is in a pendulum: on the one hand you've got a huge amount of debt, which will continue to be a burden on the economy," Mouhammed Choukeir, chief investment officer at Kleinwort Benson, said.

"On the other hand, there are the liquidity injections, the printing press. Currently we are in the printing press zone."

In this context, Kleinwort Benson maintains a neutral stance on equities, which it hedges through options to sell major indices if new, stringent austerity measures in Europe in coming months depress the region's economy further and drag equities down.

The pan-European FTSEurofirst 300

index was up 0.7 percent at 1,107.86 points, having traded a mere third of its daily volume average.

The euro zone blue-chip Euro STOXX 50

was up 1 percent at 2,511.16. It has fallen 3.2 percent from a six-month high hit in mid-September, when intervention pledges by the ECB and the Federal Reserve had fuelled a 26 percent rally from late July.

Investors have been fretting over Spain, which is seen as bound to request a bailout to allow it to access support from the European Central Bank.

Vincent Cassot, head of equity derivatives strategy at Societe Generale in Paris, said the Fed's action was momentarily outweighing structural problems in Europe but advised protecting against possible downside.

He advised doing so by buying options to buy implied volatility on the Euro STOXX 50 index

, which tracks option prices on the euro zone blue-chip index and tends to rise when the cash gauge falls, financing the trade by selling equivalent options on the U.S. implied volatility index

.

"The risk on European equities is certainly bigger than on the S&P," Cassot said. "Given the overall context, it's safer to be long\short volatility in a pair trade, so you're not exposed to only one scenario."

U.S JOBS DATA

Traders said the Fed's pledge to buy mortgage debt each month until the job market improves had reduced the significance of U.S. unemployment data due at 1230 GMT, since the reading - expected to tick up to 8.2 percent - was unlikely to change the central bank's view either way.

"The Fed has taken the excitement out of the numbers that used to drive markets," Andy Ash, head of sales at monument Securities, said. "There's very little positioning going on. To excite the market, you would need to see an economically positive number."

U.S. non-farm jobs data, due to be released along with the unemployment rate, are expected to have increased by 113,000 last month, according to a Reuters poll.

Monument's Ash said mining stocks could rally if the reading came in at or above 125,000 while a reading of 50,000 would probably trigger a correction.

(Editing by Susan Fenton)

((francesco.canepa@thomsonreuters.com)(0044)(0)(2075423871)(Reu

ers Messaging: francesco.canepa.thomsonreuters.com@reuters.net))

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