European shares ended slightly higher on Wednesday as Mario Monti's move to form a new technocrat government in Italy and a pledge by Greece's LAOS party to give unconditional support to new Greek Prime Minister gave some momentary relief to markets.
But investors remained jittery as rising bond yields in core euro zone economies except Germany raised concerns that the debt crisis could spread to even stronger countries and derail a fragile global economic recovery.
The FTSEurofirst 300 index <.FTEU3> of top European shares provisionally finished 0.2 percent higher at 971.67 points after falling in the previous two sessions. The index is down more than 13 percent so far this year.
Analysts said equities had more chances of an upward move than a decline in the longer term as U.S. economy appeared to be coming back on track and company earnings have not been as bad as people had feared. But in the near term, Europe was going to dictate the market direction, they said.
Normally you would be a buyer of risk assets, but you are holding back because Europe is in such a mess. But we sense more of a risk to the upside than the downside because the world around us, apart from Europe, is consistently improving, said Lothar Mentel, chief investment officer at Octopus Investments that manages nearly $4 billion.
Healthcare stocks <.SXDP>, traditionally seen as defensive plays, were up 0.4 percent. However, auto shares <.SXAP>, down 1.2 percent, featured among the top decliners on worries a slower economic growth would hit demand for vehicles.
(Reporting by Atul Prakash)