By Sruthi Shankar and Joice Alves
(Reuters) - European stocks closed higher on Thursday as a bounce in Wall Street stocks, gains in airlines and upbeat earnings reports drove a reversal of early losses across markets.
After falling as much as 2% in morning trade, the pan-European STOXX 600 rose 0.1% by the close, leaving the benchmark with small gains for the year.
The German DAX gained 0.3%, France's CAC 40 was up 0.9% and Britain's exporter-heavy FTSE fell 0.6%, coming under pressure from a rise in the pound.
Stocks globally saw a spike in volatility this week as a retail trading frenzy hit markets in the United States, Europe and Asia, inflating value in certain stocks that major hedge funds have bet against.
Wall Street jumped on gains in technology stocks, while American Airlines surged more than 20% at one point after the U.S. carrier was mentioned on Reddit's WallStreetBets forum following its results.
European travel names like Lufthansa, TUI and British Airways-owner IAG rose between 4.7% and 7.2%. Wizz Air and easyJet rose more than 4.5% each despite posting a double-digit decline in fourth-quarter revenue.
"UK airlines are tracking a short squeeze in American Airlines brought on by r/WallStreetBets after it released Q4 earnings," said Jasper Lawler, head of research at LCG. "AA has abnormally high short interest but other airlines do too given the state the industry is in."
Other European stocks that were highly bid this week, like CD Projekt , Ambu and Varta, extended gains, while Nokia tumbled 13%.
Investors looked past strong earnings from Apple and Facebook as well as the U.S. Federal Reserve's pledge to stick to loose monetary policy as worries about slow rollout of COVID-19 vaccines and more curbs in Europe dampened the mood.
"With valuations at levels already pricing in much of the recovery from a pandemic that is far from over, these corrections are always possible," Ian Williams, economics and strategy research analyst at Peel Hunt said in a note.
Germany is preparing entry restrictions for travellers from Britain, Brazil and South Africa, and its health minister expects the current shortage of coronavirus vaccines to continue well into April.
Meanwhile, the European Union warned drug companies such as AstraZeneca that it would use all legal means or even block exports unless they agreed to deliver shots as promised. [nL8N2K32GW]
The world's largest spirits maker Diageo rose 3% after it reported a surprise rise in underlying net sales growth in the first half of the year, helped by strong U.S. demand.
Swedish medical equipment maker Getinge jumped 9% after reporting strong quarterly results as it saw a spike in demand in 2020 for ventilators and other advanced life support equipment due to the pandemic.
(Reporting by Sruthi Shankar in Bengaluru and Joice Alves in London; Editing by Arun Koyyur and Mark Heinrich)