Bank profits boost European shares to 4-1/2 year peaks

Tue Apr 30, 2013 6:54am EDT

* FTSEurofirst 300 up 0.1 pct

* Euro zone inflation boosts ECB rate cut bets

* STOXX Europe 600 fails to hold 4-1/2 year high

By Toni Vorobyova

LONDON, April 30 (Reuters) - European shares hit 4-1/2 year highs on Tuesday, supported by strong results and by expectations of more central bank stimulus, though charts suggested the market was flagging after 11 straight months of gains.

BP gained 3.6 percent after an impressive performance in the oil major's trading division lifted profits.

Overall, banks were the best performing sector, up 1.2 percent after UBS and Deutsche Bank reported better first-quarter results than anticipated.

Banks and the broader market were also supported by lower-than-forecast euro zone inflation data, which, coupled with recent signs of economic weakness, cemented expectations for a European Central Bank interest rate cut on Thursday.

"The ECB is very likely indeed to cut rates now that we have seen this renewed weakness in ... economic sentiment indicators, and also inflation is easing quite significantly," said Gerhard Schwarz, head of equity strategy at Baader Bank.

"Even if there is probably not too much direct effect of a rate cut on the economy, and even if there is already a rally on the way, still I think there is some residual potential for equities to move higher over the next couple of weeks."

The FTSEurofirst 300 index was up 0.1 percent at 1,203.90 points by 1029 GMT, taking its gains during April to 1.5 percent and heading for an 11th consecutive monthly rise.

The broader STOXX Europe 600 index rose as high as 298.93 points, just above the previous 4-1/2-year high of 298.90 hit in March before giving up most of the gains to trade at 297.53.

The EuroSTOXX 50 index of euro zone blue chips retreated from a six-week high, edging down to 2,770.87 points .

"Euro STOXX 50 looks broadly positive, however the emergence of bearish divergence on the intraday charts, as we approach the key 2,746.02/2,754.80 ... warns of a near-term correction," said Chris Wright, technical analyst at Informa Global Markets.

"A similar pattern is present on the STOXX 600."

From a fundamentals point of view, the catalyst for a correction could come from the earnings season.

Despite strong numbers from banks, utilities and healthcare, overall, only half of the STOXX Europe 600 companies that have reported first quarter results have met or beaten expectations, prompting analysts to cut their second quarter views by 2.4 percent, according to Thomson Reuters StarMine data.

"European equities are still vulnerable to downward earnings revisions, so I don't think we are completely out of the woods yet on that count," said Ashish Misra, head of investment policy and research at Lloyds TSB Private Banking, who sees 2013 euro zone earnings growth at around mid-single digits.

Tuesday's earnings disappointments included brewer AB InBev and dialysis provider Fresenius Medical, whose shares fell 3.3 and 3.9 percent, respectively.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.