BT, Arcelor lead European shares to fresh peaks

Fri May 10, 2013 6:04am EDT

* FTSEurofirst 300 up 0.5 pct, hits fresh 5-yr highs

* ArcelorMittal, BT, Generali results beat expectations

* Yen weakness seen hurting some exporters

By Toni Vorobyova

LONDON, May 10 (Reuters) - European equities scaled fresh five-year highs on Friday, bolstered by strong earnings numbers from steelmaker ArcelorMittal and telecoms group BT and expectations of continued central bank stimulus.

Investors looked to a meeting of Group of Seven finance chiefs for reaffirmation of policymakers' commitment to economic stimulus - the key driver of equities' 11-month long rally - and for clues on possible further measures.

U.S. Federal Reserve Chairman Ben Bernanke is also expected to leave the door open to further bond buying in a speech at 1330 GMT, after conflicting comments about the effectiveness of such stimulus from some Fed officials this week.

The FTSEurofirst 300 index was up 0.5 percent at 1,234.86 points by 0944 GMT, testing levels not seen since June 2008 and getting a boost from fresh money as investors in several European countries returned after a public holiday.

Underscoring investor optimism, Lipper data showed that U.S.-based funds invested some $213 million of new money in European equities in the week to May 8 - the strongest inflows in nearly four months.

"You are just getting people dragged in, a lot of unwilling buyers. The retail investors are jumping on the bandwagon, and the institutional investors are under a lot of pressure. They can't sit on high cash balances earning nothing forever if everything is going up," said Stephen Walker, head of equities research and market strategy at Ashcourt Rowan.

"It feels like it's going to end horribly at some point, but it probably could keep going for some time."

He recommended switching from relatively expensive consumer staples into more discretionary consumer stocks and focusing on asset managers and insurers rather than banks.

Friday's gains were led by companies which posted forecast-beating earnings, with the world's largest steel maker ArcelorMittal jumping 6.3 percent and telecoms group BT surging 11.7 percent to 5-1/2 year highs.

French carmaker Renault, meanwhile, rose 2.6 percent after its alliance partner Nissan posted a jump in quarterly profits thanks to a weaker yen that boosted the Japanese currency value of its foreign sales.

Analysts at BNP Paribas said that Renault presented an attractive way to bet on more Nissan upside.

"Renault's auto business not being attributed any positive value by the market," they said. "This implicit call option is therefore being priced at a depressed value by the market and is a cheap way of getting exposure to Nissan and dollar/yen..."

For other European companies, though, the weak yen - which this week depreciated beyond the psychologically key 100 per dollar level - is bad news, making exports less competitive.

"The yen weakness is a headwind for German exporters as they might lose competitiveness. We also see some margin pressure in Germany with rising wages, which could hurt these companies," said Emmanuel Cau, strategist at JP Morgan.