More liquidity and China growth helps boost European shares

Fri Oct 18, 2013 6:48am EDT

* FTSEurofirst 300 up 4 points at 1,272.09

* Luxury good, miners rise after China GDP

* Anglo American falls after weak update

* Prudential boosted by Asian-rival AIA numbers

By David Brett

LONDON, Oct 18 (Reuters) - European shares rose on Friday on the back of robust growth data from China boosted luxury goods and mining stocks and expectations the Federal Reserve will keep monetary stimulus in the United States unchanged for months.

The Chinese economy grew 7.8 percent in the third quarter as forecast by analysts, allaying concerns of a sharper slowdown, although authorities warned of slowing momentum in the fourth quarter.

The personal and household goods sector, which includes luxury goods firm such as Burberry and LVMH , both under pressure recently after warning of slowing sales in China, was the top sectoral gainer, up 1 percent.

Miners, acutely exposed to demand from China's manufacturing sector, rose 0.4 percent but remain under longer term pressure from earnings concerns highlighted by a weak update for Anglo American.

Shares in the world's fifth largest diversified mining group fell 2.4 percent after it posted a steeper than expected drop in iron ore production and cut its sales target.

The broader FTSEurofirst 300, however, was up 4 points or 0.3 percent at 1,272.09 by 1012 GMT.

The Stoxx Europe 600 index was up for a seventh successive day, its longest winning streak this year. Many investors believe the extended government shutdown and political wrangling over the budget and debt in the United States will prompt the Fed to keep stimulus for the economy in place and help equities markets recover lost momentum.

"The next few days could provide good equities buying opportunity based on short term pricing weakness," Neil Shah, global head of research at Edison, said.

"Recent falls in equity prices have exposed value across key blue chip U.S. and European stocks, especially non-financials, where balance sheets are now once again robust and overall yields are attractive with strong cash flow supporting recent increased dividend pay-outs."

SOFTENING YIELDS

A strong finish overnight on Wall Street contributed to early gains in Europe, while the prospect of more liquidity for longer has been reflected in the softening of 10-year yields on safe-haven government debt.

"We are quite positive because (the U.S. budget standoff) is just postponing the end of quantitative easing (which has been among the main drivers of equities over the past 2 years)," said Claudia Panseri, global equity strategist at Societe Generale Private Banking.

"That said, liquidity is likely to support the equity markets more than growth because growth is still not there. So liquidity is a positive element."

Insurers gained too, up 0.6 percent and led by a 3-percent rally for British insurer Prudential, which traders attributed to a positive readacross from a rise in business at Asian rival AIA Group.

Strong earnings lifted Swedish hygiene and paper products maker SCA to the top of the list of European risers, gaining 5.2 percent.

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