European shares drift lower, InterContinental weak

Mon Oct 28, 2013 12:37pm EDT

* FTSEurofirst 300 down 0.1 pct, drifting off 5-year highs

* InterContinental Hotels falls on softer U.S. growth

* Assa Abloy and Aggreko rise after earnings updates

* European funds post record inflows-EPFR

By Tricia Wright

LONDON, Oct 28 (Reuters) - European shares inched lower on Monday, with investors wary about placing large bets in the run-up to U.S. economic data later in the week that could provide clues as to when the U.S. Federal Reserve might scale back its stimulus programme.

The FTSEurofirst 300 was down 0.1 percent at 1,283.34 points by 1622 GMT. The euro zone's blue-chip Euro STOXX 50, meanwhile, was down 0.3 percent at 3,024.64 points.

Volumes were light, at just 70 percent of the 90-day daily average on the FTSEurofirst 300 - exacerbating market moves - something traders attributed to the fact Britain's strongest storm in a decade shut down much of southern England's rail system on Monday, keeping London traders away from their desks.

The FTSEurofirst 300 has been stuck in a holding pattern for the past week, with the U.S. government shutdown having halted the release of economic data in October, muddying the picture for investors looking for signs as to how the economy is faring.

Traders say the focus this week will fall squarely on U.S. October data, namely ADP employment data on Wednesday and ISM data on Friday.

"I would suspect people are still waiting for a bit more data to come out of the United States ... before they start making any big decisions," Lynnden Branigan, analyst at Barclays Capital, said.

"I think the market's going to chop around on its side, with no real general direction for the time being but I think ultimately it will start to track higher," he said.

He would need the Euro STOXX 50 break through the Oct. 22 high, at 3,056, for confirmation upside traction was taking hold, at which point he would target 3,077, the 2011 peak.

InterContinental Hotels Group came under pressure, off 2.1 percent, on the back of softer U.S. growth.

Among gainers, lock maker Assa Abloy and power company Aggreko climbed 3.7 percent and 6.1 respectively, as Assa Abloy posted third-quarter earnings ahead of market forecasts, while Aggreko reported a rise in underlying revenues and trading margins.

The Federal Open Market Committee is unlikely to shift policy at its meeting on Tuesday and Wednesday as the Fed awaits more evidence on the impact of Washington's recent budget battle on the U.S. economy.

The FTSEurofirst 300 is just 0.7 percent off five-year highs set this month, with the uncertainty caused by the U.S. government shutdown and mixed economic data having fuelled a view the Fed will delay trimming its stimulus into next year.

JPMorgan Cazenove advised investors to trim back equity holdings in the near-term to cash in on the rally so far, as a purely short-term tactical trade.

In the medium-term, many investors expected European stock markets to rise further, aided by signs of an economic recovery in Europe.

"I think the directional bias is still upwards even acknowledging that there has been a material revaluation this year," Ian Richards, head of equity strategy at Exane BNP Paribas, said.

"Given the macro momentum that we're seeing in the advanced economies and particularly now Europe and Japan - and one would expect some sort of reacceleration in the U.S. as the shutdown distortion passes through - I would have thought that a degree of optimism on corporate earnings for next year is warranted."

Underscoring this positive sentiment, global investors poured record amounts of new money into European and Spanish equity funds in the seven days to Oct. 23, EPFR data showed, as a political deal to avert an immediate U.S. default made investors more bullish about the global economy.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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