LONDON — European shares closed slightly higher Thursday, clawing back from earlier losses as global markets reacted to earnings news and a speculative buying frenzy in heavily-shorted stocks.
European markets
The pan-European Stoxx 600 ended the session up by over 0.1%, having fallen by more than 2% in early trade. Travel and leisure shares were the top gainers, rising 1.3%, while telecoms stocks fell 2.2% to lead losses.
European markets initially mirrored moves on Wall Street in the previous session amid concerns about heightened speculative trading, but recouped all those losses as the day wore on.
The S&P 500 and the Dow posted their worst day since October on Wednesday, as the frenzy in heavily shorted stocks kept investors on edge. Some fear that hedge funds being squeezed could be forced to reduce their equity holdings to raise cash.
On Thursday, though, U.S. stocks rebounded with the S&P 500, Dow Jones Industrial Average and Nasdaq Composite indexes all posting gains.
Brick-and-mortar video game retailer GameStop, a red-hot target on the WallStreetBets Reddit chat room, fell more than 50% amid multiple trading halts. The stock started dropping as word of broker restrictions began to spread. Interactive Brokers and Robinhood have limited transactions for heavily shorted names including GameStop and AMC Entertainment.
Airlines rally
European airlines received a boost on Thursday, with British Airways parent IAG and Germany's Lufthansa bouncing 4.7% and 6.3% respectively after American Airlines reported a better-than-expected loss for the fourth quarter of 2020.
On the earnings front, Diageo posted a surprise rise in underlying net sales growth for the first half of its fiscal year on Thursday, with an uptick in retail demand in the U.S. offsetting the impact of pub closures in Europe. Shares of the world's largest spirit maker gained 3.2% by the close.
At the bottom of the European blue chip index, Finnish telecoms firm Nokia fell 13.3%. It comes after the firm was pulled into the frenzied market activity, with its U.S.-listed shares spiking as much as 40% in Wednesday's session.
Meanwhile, Prudential fell 7.8% after announcing plans to spin off its U.S. business Jackson through a demerger, ditching plans for a minority IPO.
- CNBC.com staff contributed to this market report.