PARIS, July 29 — A string of Europe’s largest firms issued surprisingly upbeat profit reports on Thursday, bolstering an abrupt renewal of investor confidence in the region after months of debt turmoil and fears for the euro.

Broader economic data added to the theme, following some startlingly strong numbers last week — euro zone economic sentiment rose strongly in July and German unemployment fell to its lowest level since November 2008.

Economists said the underlying performance in the region as a whole was never quite as bad as suggested by incessant news of debt default dangers in Greece and other southern European economies badly bruised by the recession of 2008-2009.

But they also cautioned that the abrupt swing towards a more positive mood did not change the fact that the region’s economy is likely to heal only slowly with harsh government austerity measures poised to bite in the months ahead.

On the day, the upbeat news from some of Europe’s biggest companies was nonetheless impressive and came on the heels of surveys last week which showed an unexpectedly high level of growth in both the manufacturing and services sectors in the region.

Publicis, the world’s third-largest advertising group in terms of revenues, posted better-than-expected profit figures for the first half, declared its outlook better than previously envisaged, and the company’s boss went as far as to declare the bad times over.

“We really have the feeling of being at the end of economic crisis, or even having put it completely behind us,” Publicis CEO Maurice Levy told reporters.

His remarks were not isolated.

Dutch staffing firm Randstad, second largest in the world in its field, said it was not seeing signs of a double dip in the economy, with companies continuing to hire more staff, notably in Germany and France.

“We are seeing growth everywhere. Even in Greece we are seeing the usual pattern. We are not seeing signs of a second dip,” Randstad Chief Financial Officer Robert-Jan van de Kraats told Reuters.

Europe’s debt market crisis spilled out of Greece late last year when markets took fright at the size of the country’s deficit and ballooning debt, knocking the euro and European assets as investors started to fret about the risk of debt default in the region despite a Greek bailout.

Drugs and engineering giants gave good readouts too.

France’s Sanofi-Aventis beat second-quarter earnings expectations, AstraZeneca posted strong results and German chemicals maker BASF surpassed analysts’ earnings expectations for the sixth straight quarter, bolstered by a rebound in the car and electronics industries.

German engineering conglomerate Siemens posted a better-than-expected 40 percent rise in fiscal third-quarter operating profit, helped by cost cuts and the export fillip from a weaker euro — an exchange rate advantage ironically spawned by the debt crisis and investor fears that at some stages fuelled questions about the common currency’s very survival.

That debt market crisis propelled debt refinancing costs to record highs for governments in places such as Portugal, Ireland and Spain in May-June, but they have fallen back sharply in many cases in the last 10 days or so, suggesting investors sense the worst of the danger has passed.

The premium investors demand to hold the 10-year bonds of Ireland and Portugal instead of the equivalent debt of safe-bet Germany has fallen about 18 percent in less than two weeks and markedly too in Spain.

Mood swing

All that reflects a suddenly more positive take on Europe as the region additionally gains attractivness in relative terms for global investors after a string of somewhat disappointing news on the US front in recent weeks.

Investment bank UBS, where economists have long argued that investors were perhaps overly negative about the fiscal woes of the region, published a note that captured the shift in mood as far as they see it.

“Today our Global Strategy team upgraded Europe to Neutral (from Underweight) as they position their portfolio for a more positive tone,” said the note.

“We continue to promote Europe on compelling valuations, economic data and relief for the banks to boot,” UBS said, noting that Germany’s Ifo index of business sentiment registered its biggest leap in 20 years in July, British second-quarter GDP was much stronger than expected and the fact that “stress tests” on banks across the region had proven mostly reassuring.

Other signals that the crisis was petering out include sharp drops in the price of credit default swaps (CDS), which provide protection against debt default and which soared in May.

The Markit iTraxx SovX index of Western European CDS prices is now at 114 bps, 54 basis points below its highest closing level of 168 basis points, seen on May 7.

In addition to a renewed focus on economic activity, signs are that investors are also encouraged by the existence of the 750-billion-euro standby lending facility euro zone governments have put in place to stem debt crisis contagion.

Despite some scepticism, investors also appear reassured by the fact that all but seven banks passed so-called stress tests of their financial resilience. Bank shares in Europe, as measured by the STOXX Europe 600 bank index, are up 7.4 per cent since the stress test results emerged on July 23 and 25 percent up from the trough they hit in early June.

Not so fast

At Deutsche Bank, however, economist Gilles Moec warned against getting carried away about the economy’s recovery.

“There’s no big change in terms of the underlying macro picture: we’re in for slow growth,” said Moec.

After poor first-quarter GDP figures in much of Europe, the second-quarter is expected to be stronger by definition more than as a result of any major upswing, and government stimulus deployed to combat the recession is still in place, with much of the post-recession austerity yet to come.

Economic growth is expected to be a modest 1.1 this year and 1.3 per cent in 2011, according to a Reuters poll of 40 economists that was published in mid-July. That follows a GDP drop of 4.1 per cent in 2009.

“What is really impressive is the speed at which investors’ focus has shifted away from hammering Europe to having a more sober look at the US,” said Moec.

A Reuters poll of 15 Europe-based asset managers showed on Thursday that European investors boosted fixed-income allocation to a 2010 high in July, although, as Mauro Ratto, head of Europe and Asia management at Pioneer Investments, put it:

“Concerns about the euro government debt crisis seem to be receding. However, most warning signs are still flashing red ... the prospect of budget tightening is unlikely to improve European growth rates.” — Reuters