European shares post brisk gains for 2012

Mon Dec 31, 2012 12:53pm EST

* FTSEurofirst 300 up 0.3 pct in last session of the year

* Benchmark index rose 13 pct in 2012, best year since 2009

* Bold central bank moves sparked sharp rally in H2

* U.S. investors continue to pile up European stocks -EPFR

By David Brett and Blaise Robinson

LONDON, Dec 31 (Reuters) - European equities ended slightly higher in the final trading session of 2012, a year that saw a sharp rebound in the region's stocks as bold measures from central banks soothed fears of a break-up of the euro zone.

With just a few hours remaining before the deadline in U.S. budget talks, however, investors were unwilling to take on much risk, keeping trading volumes to extremely low levels.

French, Dutch, Spanish and UK markets only traded for half the session ahead of the New Year Holiday, while those in Germany, Italy, Austria, Denmark, Norway, Sweden and Switzerland remained closed.

The FTSEurofirst 300 ended the year at 1,133.96 points, up 0.3 percent on the day and posting an annual gain of 13.2 percent, its best year since the sharp bounce of 2009.

The euro zone's blue chip Euro STOXX 50 index ended the year at 2,635.93 points, up 0.4 percent on the day and recording a gain of 13.8 percent for 2012.

Hopes were fading, however, for any sort of broad U.S. fiscal deal when Congress comes back later on Monday, with only a few hours of legislative time scheduled in which to act if an agreement materialises to avert the massive tax hikes and spending cuts set to come into force automatically in January.

Most of the few traders still at their desks on Monday had already closed their positions heading in to the year end, and financial markets are largely anticipating that U.S. politicians will compromise eventually, given the damage the automatic measures would do to the U.S. economy.

"There are very few deals being done and there are few sellers out there with most of us having flattened our positions in the build up to Christmas," a London-based trader said.

"Emphasis is shifting from prevention towards retrospective measures in the United States, but it will be interesting to see how Wall Street reacts and what happens when traders get back to their desk in the new year," he said.

BULLISH SECOND-HALF 2012

The Eurofirst 300 closed the month of December with a gain of 1.3 percent, the index's seventh straight monthly gain, its longest streak of positive months since 1999.

Central banks' commitment to stabilising the financial system and attempting to boost growth have favoured beaten-down equities. The main catalyst has been European Central Bank president Mario Draghi's promise to do whatever it takes to save the euro.

With euro zone risks fading and investors becoming more confident in stock picking, European equities have seen the return of positive inflows since July, data has shown.

In the week that ended on Dec. 26, Europe equity funds took in fresh money for a fifth week in a row and in 11 of the past 16 weeks, according to EPFR Global data.

The appetite from U.S. investors has been strong, with U.S.-domiciled Europe equity funds carrying an inflow streak stretching back to mid-August, according to EPFR.

After suffering an 84 percent plunge between October 2009 and June this year, Athens's benchmark index posted a gain of 33.4 percent for 2012, the best performance among European benchmarks and outpacing Germany's DAX, up 29.1 percent.

The Spanish and UK equity markets were the laggards in 2012, with Madrid's IBEX down 4.7 percent on the year and London's FTSE 100 up only 5.8 percent, outpaced by France's CAC 40 index <.FCHI, which gained 15.2 percent and Italy's FTSE MIB, up 7.8 percent.

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