Media, utility stocks lift European equities

Thu Feb 28, 2013 4:08am EST

* Media and utility sectors outperform as markets rise

* FTSEurofirst 300 up 0.5 pct, Euro STOXX up 0.6 pct

* Central bank support lifts equity markets

* Italy worries could cause March pullback

By Sudip Kar-Gupta

LONDON, Feb 28 (Reuters) - European shares rose on Thursday, with utility and media stocks among the top gainers, as fresh signs of central bank support enabled equities to recoup earlier losses caused by Italy's political deadlock.

The pan-European FTSEurofirst 300 index rose 0.5 percent to 1,166.82 points, while the euro zone's blue-chip Euro STOXX 50 index advanced 0.6 percent to 2,626.44 points.

European stock markets fell earlier this week after the election in Italy produced a stalemate, reigniting worries over Italy's ability to undertake reforms for its economy, which has been hit by the euro zone's sovereign debt crisis.

Those worries were offset by fresh pledges by the European Central Bank and U.S. Federal Reserve this week to continue with steps to inject liquidity into markets, which have propped up the global economy and equities.

Reassuring results from leading European companies also boosted equities on Thursday.

The STOXX Europe 600 Utilities Index rose 1.1 percent to outperform other sectors, with French utility GDF Suez gaining 1.4 percent as it stuck to its 2013 financial targets.

European utility stocks are often favoured in times of market uncertainty for their stable profits and dividends, with UK utility Centrica posting a 9 percent profit rise earlier this week.

"The utilities are looking pretty good today," said Berkeley Futures associate director Richard Griffiths.

Griffiths said that despite worries over Italy in the backdrop, his firm had sold more "call" options to investors betting on further market gains, than "put" options betting on more market falls.

Griffiths said investors had bought "call" options on Germany's DAX equity index that were due to expire in April with a strike price of 8,000 points - implying a 3 percent rise over the next month.

"We're much more active on the 'calls' side," he said.

RANGEBOUND MARKET IN MARCH?

The STOXX Europe 600 Media Index also outperformed other sectors with a 1.2 percent gain, as publishing company Reed Elsevier reported it expected more growth in 2013.

Although the longer-term outlook for equities remains bullish, due to expectations of central bank support measures and a gradual recovery in the global economy, others expected volatile stock markets in March.

They added Italy remained a concern, while U.S. budget cuts due to kick at the start of next month could also prevent equity markets from making much headway in March.

Central Markets chief strategist Richard Perry said there was still a risk of a 4 percent fall on equity markets this month, which could precede any later rally in April.

"I think markets will be choppy and rangebound this coming month. I don't think it will break much higher, and if anything it could break lower," he said.

William Beverley, head of macroeconomic research at wealth management firm Iveagh, also said there was a risk of a near-term pullback. "There is still potential for a little bit more correction, perhaps up to 5 percent in global markets in a worst case scenario," he said.

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