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Paris - European shares rose in early trade on Tuesday following a long holiday weekend, with UK telecom group Vodafone boosted by renewed M&A talk.
Gains were capped, however, as investors awaited manufacturing data expected to paint a bleak picture of the region's economy, and after softer-than-expected US manufacturing data that prompted investors to book recent gains on Wall Street on Monday.
At 07:33 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 0.5% at 1,194.53 points, while the eurozone's blue chip Euro STOXX 50 index was up 0.4% at 2,635.12 points.
"As long as it remains below 2,650 points, the Euro STOXX 50 is just bouncing around. That's the level to watch, and we're not there yet," said David Thebault, head of quantitative sales trading, at Global Equities.
Investors were also worried about the impact from Cyprus's bailout after the country's central bank said over the weekend that major depositors in Bank of Cyprus will lose around 60% of savings over €100 000, more than initially expected.
"The way the European Union managed the Cypriot crisis has been a disaster, and confidence might take time to come back, so investors will remain cautious for a while," Thebault said.
"We're buying futures to catch a potential rise, but we're not adding stocks to portfolios at this point."
Eurozone banks fell on Tuesday, with UniCredit down 2.9% and BBVA down 1.9%.
Around Europe, UK's FTSE 100 index was up 0.5%, Germany's DAX index up 0.5%, and France's CAC 40 up 0.4%.
Vodafone was the biggest gainer among European blue chips, up 4%, boosted by renewed market talk about a potential tie-up with Verizon Communications.
"One of the only positive elements in the market at the moment is M&A hopes. With stocks at such low prices, people are expecting a wave of mergers and they're trying to position themselves for that," a Paris-based trader said.
European stocks have sharply rallied since mid-2012 - with the Euro STOXX 50 gaining about 30% - lifted by the European Central Bank's pledge to safeguard the euro, which eased fears of a break-up of the region's currency bloc.
The rally stalled recently, however, halted by the return of worries about political risks in the eurozone, such as the political impasse in Italy following an inconclusive election and Cyprus's mounting debt crisis, which have prompted investors to book some gains and move to the sidelines.
The pull-back has been particularly sharp for banking stocks, with the eurozone STOXX banking sector index down around 20% since a peak in late January.
