Earnings power European stocks

LONDON, England (CNN) -- European stock markets rallied in midday trading on Wednesday as the region's biggest companies reported a strong set of earnings and Wall Street was expected to open higher.

Nestle, the world's biggest food group, posted earnings inline with expectations, Europe's second-biggest airline Lufthansa raised the prospect for the troubled sector and Axa, Europe's biggest insurer, delivered forecast beating first-half earnings.

London's FTSE 100 rose 1.8 percent to 4,445.6 and Frankfurt's electronically traded Xetra Dax added 3.3 percent to 3,893.02, while the CAC 40 blue chip index in Paris gained 2.7 percent to 3,531.8.

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, was up 2.3 percent, with the information technology and engineering sub-sectors leading gains.

"Good corporate results have boosted the market today but there is still an open-ended question whether we are just seeing a bull rally in a bear market,'' Alia Baig, head of European equities in London at Axa IM, told Reuters.

"The market certainly feels better -- there's less reason to be negative and there's more volume going into markets,'' Baig said. "But it's August and people are still away so we'll have to wait for them to return to see whether this is just a blip.''

France's Axa (PCS) rose 5.1 percent to 15.56 euros. The company said first-half net income fell 32 percent to 840 million euros, but that was less than the market was expecting. Axa released it numbers three weeks ahead of schedule to calm jitters about the impact of slumping stocks markets on its holdings. (Full story)

Lufthansa (FLHA) soared to the top of the Dax leaderboard, up 9.2 percent to 13.27 euros after the airline narrowed losses following cost and capacity cuts. The German airline reiterated forecast to increase operating profit to at least 500 million euro for the full year. (Full story)

Swiss food giant Nestle rose 3.7 percent to 337 Swiss francs after posting profits inline with analysts' expectations. Its stock fell more than 6 percent on Tuesday after analysts at Merrill Lynch downgraded to stock to a "neutral" from "buy." (Full story)

In the technology sector, the world's biggest mobile phone equipment maker Ericsson soared 33 percent to 7.75 euros, recouping losses made since the start of its 30 billion Swedish crowns one-for-one rights issue.

Hedge funds have been short-selling Ericsson shares and buying rights to the company's issue, in an attempt to safeguard themselves against the price falling below the new issue price of 3.8 crowns, according to Reuters.

Deutsche Telekom (FDTE), Europe's biggest phone company, rose 1 percent to 12.03 after the company told CNN it was in talks to sell its loss-making VoiceStream mobile phone business. (Full story)

The AEX index in Amsterdam rose 2.2 percent and Milan's MIB30 index advanced 2.1 percent, while the SMI in Zurich climbed 2.7 percent.

In the U.S. on Tuesday, stocks closed sharply lower as investors retreated from the previous session's strong rally on a variety of deals and downgrades in telecom and media.

The Dow Jones industrial average lost 118.72, or 1.32 percent, to 8,872.07 and the Nasdaq composite fell 17.95, or 1.29 percent, to 1,376.59, while the Standard & Poor's 500 index gave back 13.27, or 1.40 percent, to close the day at 937.43.

Wall Street was expected to open higher later on Wednesday. S&P 500 index futures rose 7.7 points to 947.5 on the Globex trading system, while fair value, a measure that takes account of interest costs and dividend payments, was calculated at 938.94.