European shares reverse early losses, DAX immune to political worries

LONDON (Reuters) - European shares opened lower on Tuesday but quickly recovered as continued faith in the underlying strength of the European economy and a synchronized global expansion overcame negative trading updates, notably in Britain.

The STOXX 600 <.stoxx> benchmark was up 0.1 percent by 0955 GMT with most European bourses and sectors in positive territory.

Germany's DAX <.gdaxi> was up 0.1 percent after Chancellor Angela Merkel said she would prefer a new election to minority rule after the failure of talks to form a three-way coalition.

"Financial markets did not really react too much", said Paul Donovan, chief economist at UBS Wealth Management, adding that a snap election is not the most likely option because it would be a lengthy process.

Volkswagen was among Germany's top gainers for a second day. The carmaker extended gains made after raising its mid-term outlook on Monday, rising 2.4 percent.

ProSiebenSat.1 rose 1.8 percent after JP Morgan lifted its target price to 45 euros amid continuing speculation that the German broadcaster could become an acquisition target.

Energy group Uniper , meanwhile, lost 0.2 percent after saying it rejected an 8.05 billion euro ($9.45 billion) bid from Finland's Fortum . Uniper said the offer significantly undervalued the company.

On the UK market, a number of trading updates triggered sharp falls.

Aggreko , the world's largest listed temporary power provider, slumped as much as 11 percent as the lingering effect of discounts made to win a contract in Argentina this year clouded third-quarter results.

Melrose fell 7.1 percent after reporting difficult market conditions for its Brush business, which manufactures electricity generating equipment.

Other UK companies hit by results announcements included Mediclinic , down 4.6 percent, with Intertek falling 3.7 percent, Compass 3.1 percent and Johnson Matthey 1.7 percent.

Kingfisher , Europe's largest home improvement retailer, lost 1.2 percent after reporting a small fall in underlying sales, citing weak performance in France.

EasyJet was the top performer with a 5.1 percent gain after it said it was benefiting from the collapse of rivals and from problems at Ryanair .

Altice shares fell 3.7 percent after Bank of America Merrill Lynch cut its rating on the telecoms and cable group to "neutral" from "buy", with the investment bank citing the impact of lower expectations for the company's French business.

($1 = 0.8522 euros)

(Reporting by Julien Ponthus; Editing by Georgina Prodhan and David Goodman)