European shares lifted by U.S. data

Tue Sep 25, 2012 12:48pm EDT

* FTSEurofirst up 0.4 percent

* U.S. data lifts growth gloom

* Suedzucker climbs as it raises outlook

By David Brett

LONDON, Sept 25 (Reuters) - European shares rose on Tuesday after upbeat U.S. data lifted sentiment as investors searched for signs of sustainable growth in the run-up to the third-quarter earnings season.

The FTSEurofirst 300 was up 4.03 points, or 0.4 percent, at 1,119.79.

It rose in tandem with U.S. indexes after news that home prices in 20 major U.S. cities rose for a sixth consecutive month and consumer confidence jumped to its highest level in seven months in September.

"Growth is the final piece of the jigsaw to enable equities to push on," Guy Foster, head of portfolio strategy at Brewin Dolphin, said. "Expectations are modest for third-quarter earnings. So, just a bit of certainty would enable us to enjoy another phase of progress in to the year end."

Banks, which helped power gains over the summer, climbed again. Valuations remain attractive, below historical averages on 10.8 times forward 12-month price-to-earnings and a price-to-book multiple of 0.7, while the sector yields a dividend around 4 percent, according to Thomson Reuters data.

"In terms of relative asset class valuation, equities look outstanding value. We know there is a considerable amount of liquidity looking for a home and equities remain the most likely place for it to go," a London-based trader said.

DEFENSIVES SWEETNER

There was rising interest in defensive stocks - companies and sectors whose products and services are perceived to remain in demand whatever the economic backdrop - which endured a relative period of underperformance while the broader market rallied in the three months since June.

Dividend yields in sectors such as food and drink at around 3 percent are attractive to fund managers, compared with close to zero for cash and negative real returns on government bonds.

Suedzucker rose 3.4 percent after the German sugar maker raised its outlook on good performance from its sugar and ethanol businesses.

"While we had expected an increase in guidance, we supposed an upgrade would only be made with the second-quarter results in October rather than now," Commerzbank analyst Dennis Schmitt said.

London-listed peer Tate & Lyle climbed 1.0 percent as Europe's food and beverage sector added 0.8 percent in relatively strong volume.

British drinks group Diageo added 1.7 percent after saying it was in talks to take a stake in Indian billionaire Vijay Mallya's United Spirits Ltd.

"The stake could thus add around 2.5 percent to sales at the group level but more importantly 17 percent to the emerging Asia Pacific division," said Mike van Dulken, head of research at Accendo Markets.

World number two truckmaker Volvo was the top gainer, up 4.2 percent on the back of a long-awaited plan to boost profitability.

Other auto-related stocks were the main underperformers. Continental fell 4 percent after shareholder Schaeffler placed shares in the automotive supplier worth about 1.69 billion euros ($2.2 billion).

The sector has come under pressure from dwindling sales in Asia and Europe, and Daimler fell 1.6 percent on reports it may cut production at its largest car plant.

Goldman Sachs lowered its earnings forecasts for Daimler by up to 7 percent between now and 2014 and also cut its earnings estimates on peer BMW, which closed down 1.4 percent.

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