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A softer stance on inflation by the European Central Bank and more rate cuts from the Bank of England would boost European stocks, and investors could cautiously start to buy shares again, analysts said a day before the two banks meet to decide on interest rates.
But a full recovery in stock markets is still a remote prospect, as volatility dominates trading, with more bad news expected in the coming months.
"The ECB decision will not be a surprise. Financial markets expect no change (on rates), and I think that will happen," Bert Burger, a strategist at Theodoor Gilissen Bankiers, Amsterdam, told CNBC.com.
But "if they are a bit dovish, equities markets could react positively," Burger added.
Since the credit crunch hit Europe in August last year, major indexes have dropped sharply, with the financials bearing the brunt of the fall.
London'sFTSE-100 lost around 7 percent of its value over the past six months, the Frankfurt DAX shed nearly 10 percent, while the Paris CAC 40 plunged by more than 17 percent and Milan stocks plummeted 18 percent.
The Bank of England is expected to continue its easing cycle, cutting rates by a quarter point on Thursday.
"If they don't, equities markets can react with disappointment," Burger said.
Stubborn ECB
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