(Corrects headline to show stocks recovered)
* ADVISORY- Reuters plans to replace intra-day European and UK stock market reports with a Live Markets blog on Eikon - see Open for site in development. See the bottom of the report for more details
* Sonova slumps after missing financial targets
* Renewed prospect of U.S. rate hike impacts equities
* Goldman Sachs cuts equities to “neutral”
By Alistair Smout
LONDON, May 18 (Reuters) - European stock markets recovered from a weak start on Wednesday, with a rally in banks and a rebound on Wall Street helping to counteract some weak corporate earnings from companies including Switzerland’s Sonova .
The pan-European FTSEurofirst 300 index rose 0.6 percent to 1,322.24 by 1445 GMT, recovering from an early fall.
Signs that inflation was returning to the U.S. economy and hawkish comments from a Fed official had hit Wall Street on Tuesday, leading to a weaker open for European stocks. However, strength in tech giants Apple and Amazon helped Wall Street to rebound.
Banks were the top sectoral riser, up 1.9 percent with some citing the prospect of higher rates as providing relief for the sector, which has struggled to preserve net interest margins and profitability in a low-rate environment.
“The idea of a normalisation of rates is coming back on to the cards, despite it being written off recently, and that’s one of the major issues that banks have been dealing with,” said Joshua Mahoney, market analyst at IG.
Italian banks rallied, and the blue-chip index FTSE MIB outperformed, up 1.1 percent, benefitting from ongoing speculation of consolidation among some of Italy’s smaller banks.
Portuguese lender BPI rose 3.6 percent, to trade above 1.113 euros, which was Caixabank’s offer for the bank.
While BPI welcomed the bid from its Spanish peer when it came in late on Tuesday, it said the offer was “low”, leading some traders to speculate as to whether a higher bid might be forthcoming.
British lender Lloyds rose 3.4 percent, with traders citing speculation that the UK government would seek to restart the process of selling off its shares in the bank. RBS , which the government also holds shares in, rose 4.1 percent.
Despite the rally, the FTSEurofirst is down by around 8 percent so far in 2016, with concerns about a China-led global economic slowdown having impacted world stock markets this year.
Investment bank Goldman Sachs also cut its view on global equities, downgrading the asset class to “neutral”.
“Until we see sustained earnings growth, equities do not look attractive, especially on a risk-adjusted basis,” Goldman Sachs wrote in a note.
Weak earnings were a weight on the market, and Swiss hearing aid maker Sonova was among the worst-performing stocks in Europe, slumping 8 percent after missing its full-year sales and profit targets.
Fashion firm Burberry fell 2.2 percent, after a 10 percent fall in profit, saying that full-year results for this year would come in towards the lower end of current expectations.
Among gainers on the STOXX Europe 600, Booker Group rose 6.6 percent after an upgrade to “buy” from “neutral” by Goldman Sachs.
Today’s European research round-up
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Mike Dolan, Markets Editor EMEA. (Editing by Andrew Heavens)