Europe shares hold on to slice of China-fuelled gains

Wed Dec 5, 2012 1:22pm EST

* FTSEurofirst 300 up 0.3 percent
    * Miners buoyed by China comments
    * Sage knocked after results

    By Tricia Wright
    LONDON, Dec 5 (Reuters) - European shares rose on Wednesday,
helped by positive comments from China on the outlook for growth
there, although jitters over U.S. budget talks and a
disappointing Spanish bond sale dented sentiment.
    The FTSEurofirst 300 closed up 0.3 percent at
1,124.07, having hit a peak of 1,126.26 in early trade after
Chinese Communist Party chief Xi Jinping said overnight that the
country would ensure stable economic growth.
    Miners, heavily reliant on demand from China, were
the top gainers by some margin, ahead 1.7 percent.
    "The market today found unexpected support from China where
the new administration made a series of pro-growth
announcements, leading the Chinese index to have its strongest
day in many months," said Lex van Dam, hedge fund manager at
Hampstead Capital, which manages around $500 million of assets.
    Demand at Spain's latest bond sale was lacklustre, however,
and when fresh evidence of political stalemate in the U.S.
"fiscal cliff" talks emerged, the market trimmed gains.
  
    "There's no agreement. That is going to filter through (to)
cause negative sentiment and a bit of selling," Angus Campbell,
head of market analysis at Capital Spreads, said of the U.S.
budget deadlock.
    The market's advance was also held in check by weak services
data in Europe, with little sign the euro zone region will
emerge from recession soon, and a survey reading that showed a
recovery in the UK's dominant services has stalled.
  
    Poor demand from Europe was reflected in British software
company Sage Group's full-year results, with its shares
off 3.5 percent, the second-top FTSEurofirst 300 fallers.
    The company, whose software is used by more than 6 million
small businesses to run payroll and accounts, said tough
conditions for small businesses in France and Spain would drag
on growth in 2013. 
    But some were positive. In a note on European stocks, U.S.
investment bank Citi remained bullish on prospects for equities
in Europe in 2013, recommending that investors choose companies
with defensive growth characteristics and which are seen as
"world champions" in their sector. 
    The world's No. 3 retailer Tesco climbed 3.3
percent after announcing it is set to end its five-year attempt
to crack the cut-throat U.S. grocery market and focus instead on
its struggling home business and faster-growing emerging
markets. 
    "Despite a weak outlook in terms of macro growth (in
Europe), we can reasonably expect (price/earnings (P/E))
multiple expansion," said Yves Maillot, head of equities at
Natixis Asset Management, which has 286.5 billion euros ($374.9
billion) of assets under management.
    The MSCI Europe trades on a 12-month forward
P/E ratio of around 11 times, according to Thomson Reuters data,
with Maillot targeting a P/E of 12.5 times.
    "Of course the European equity market can stay cheap and
'unloved' for some time, but a catalyst for a P/E multiple
expansion can come from a more accommodative and integrated
policy in Europe," Maillot said.