European shares end higher; focus on US jobs plan

Thu Sep 8, 2011 1:30pm EDT

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* FTSEurofirst 300 index up 0.9 percent

* Energy shares among top gainers on firmer oil

By Atul Prakash

LONDON, Sept 8 (Reuters) - European shares ended higher on Thursday, boosted by short covering ahead of a speech from U.S. President Barack Obama about his plan for jobs growth to help the struggling U.S. economy.

Expectations Obama's $300 billion plan will include tax cuts for the middle class and businesses and new spending to repair infrastructure, and U.S. Federal Reserve Chairman Ben Bernanke's comment on economic outlook could surprise on the positive side prompted investors to buy riskier assets.

Obama was scheduled to speak at 2300 GMT, while Bernanke's speech was set for 1730 GMT. There wil also be a focus on a meeting of finance ministers and central bankers from the Group of Seven (G7) economic powers in France on Friday.

"The debate has now moved on to the potential policy response that we could see and with Obama's speech tonight, Bernanke speaking this afternoon and a G7 meeting on Friday, you have started to line up the catalysts which could respond to some of the economic concerns," said Ian Richards, European equity strategist at RBS.

"And with the markets at these kinds of levels, a policy response on the positive side would be very welcome."

The FTSEurofirst 300 index of top European shares closed 0.9 percent higher at 939.63 after choppy trade that saw it move in a 926.38-942.34 range.

Energy shares headed the gainers' list, with the European sector index rising 2.2 percent, tracking crude oil which rose after a government report showed crude stocks fell more than expected last week in the United States.

Credit Suisse said while oil majors had derated and were cheap in absolute terms, trading at around 6.8 times estimated 2011 earnings, their relative valuation was not attractive enough to justify broad-based buying of the sector.

"We remain selectively positioned to cash flow growth-oriented names in our preferred EMEA portfolio," it said.

Its conviction call remained Royal Doutch Shell (RDSa.L), which was seen offering the best cash flow growth. It liked Repsol for its deep exploration portfolio, coupled with dividend growth.

British group Wm Morrison Supermarkets , up 4.2 percent on better-than-expected first-half profit, led retailers higher, with the sector index up 1.8 percent.

VALUATION SUPPORT

Analysts said while the market was discounting a lot of bad news, valuation alone was rarely a catalyst for a change in sentiment but often provided a level of support. The multiples today were equivalent to recessionary environments and some investors were getting interested.

According to Thomson Reuters Datastream, the STOXX Europe 600 index carried a 12-month forward price-to-earnings ratio of 8.8, against a 10-year average of 13.2.

Some analysts advised caution, saying the market, which hit a two-year low last month and is down about 16 percent this year, still looked vulnerable as the euro zone debt crisis was far from over and there were risks the problem could spread.

"We continue to maintain a long-held underweight exposure to the region, reflecting deep-seated and intractable uncertainties," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.

European Central Bank President Jean-Claude Trichet said there were "intensified downside risks" to the economic outlook for the 17-country euro zone, marking a significant change in stance from last month when the bank was focused on inflation risks. The ECB kept rates unchanged.

Don Fitzgerald, fund manager at Tocqueville Finance which manages $2.2 billion, said his fund company had not made any major changes to its portfolio but was trying to pick up stocks, such as airline catering and logistics company Gategroup , which the market perceived as being more cyclical than they were in reality.

Richards at RBS said he favoured the basic resources sector, which could be one of the prime potential beneficiaries of any possible quantitative easing or monetary stimulus. (Editing by Dan Lalor)

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