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Euro Stocks Higher After Choppy Session

European shares managed to end a volatile session in positive territory Wednesday, having followed U.S. stocks higher and gained from bullish utilities and telecom stocks.

Stocks moved in and out of positive territory earlier in the day, as investors were digesting a wave of major earnings reports, a sharp selloff in Asia, U.S. recession fears and the possibility of a huge mining sector merger.

Japan's Nikkei finished 4.7 percent lower, while blue chips in Hong Kong lost more than 5 percent. The Dow closed 2.9 percent lower Tuesday -- its lowest percentage drop in nearly a year -- after the Institute of Supply Management's non-manufacturing index fell to its lowest level since the month after the Sept. 11, 2001 terrorist attacks. Citigroup was one of the day's biggest losers on the Dow, falling 7.4 percent.

But investors in Europe may be betting that the worse the news is, the more pressure there will be for the European Central Bank to cut rates, which would be good for stocks.

"At the moment we have an asymmetric market, a market that is chasing bad news," said Alain Bokobza, head of strategy at Societe Generale in Paris.

"The probability of the United States entering recession in Q1 is going through the 50 percent barrier, and the rise in the dollar shows that people are starting to play a fall in ECB rates quicker than market expectations," he added.

Mining stocks were in focus after BHP Billiton launched a sweetened $147.4 billion hostile bid for rival Rio Tinto. The bid was later rejected by Rioon the grounds it undervalued the company. Shares of BHP closed 4.8 percent lower and Rio shares lost 0.3 percent. Xstara shares gained 1.2 percent and Lonmin gained 1.4 percent.

Individual earnings also helped European shares. France Telecom fell 1.8 percent after boosting its cash flow projection for the year and Sweden's Electrolux gained 1 percent after topping profit expectations with stronger margins.

And Deutsche Postbank jump more than 10 percent on a report that its parent is looking for a partner to create a major European bank.

Among losing stocks, truck maker Volvo fell 9.7 percent after its profit rose less than expected, while Conergy tumbled more than 18 percent after the German solar power company swung to a loss for the year and said it expected to exit several countries.

-- Reuters contributed to this report