China boost for Alcatel and Total buoys European shares

Thu Mar 27, 2014 11:29am EDT

* FTSEurofirst 300 index edges up by 0.1 pct

* China deals boost Alcatel Lucent and Total

* H&M slides after profit warning

* Alstom suffers on prospect of U.S. penalty (Adds quote, detail, updates prices)

By Alistair Smout

LONDON, March 27 (Reuters) - European equities edged higher on Thursday, lifted by a rise in telecoms equipment maker Alcatel and oil group Total which were both boosted by new Chinese deals.

Alcatel Lucent rose 2.9 percent, making the stock the best performer in percentage terms on the FTSEurofirst 300, after it won a one-year contract worth up to 750 million euros ($1 billion) with China Mobile.

French group Total gained 0.9 percent to hit a new high for 2014 after it also won a Chinese deal, part of a series of agreements struck by leading French companies during a visit to Paris by Chinese President Xi Jinping.

The gains helped the pan-European FTSEurofirst 300 index to edge up by 0.1 percent at 1,321.18 points by 1506 GMT.

The euro zone's blue-chip Euro STOXX 50 index also inched up by 0.1 percent to 3,132.30 points.

Weighing on the market was Swedish fashion retailer Hennes & Mauritz (H&M), which was down 3.7 percent following a profit warning.

The latest in a string of profit warnings for European corporates so far this year, the H&M update highlighted the risk that not all companies would meet market expectations.

"H&M is quite a volatile stock on earnings announcements, so you can't necessarily read from that company to the wider market. But we haven't seen many upgrades so far in Europe (in 2014)," said Veronika Pechlaner, who helps manage $13 billion of assets at Ashburton Investments, adding that stocks may struggle to rise without strong earnings as valuations look full.

"Earnings delivery is important this year ... It will be a test as we move through the year to see who can actually upgrade their numbers."

Alstom also fell, down 5.3 percent on the prospect that the French engineering firm could face hefty penalties from the U.S. Justice Department in a bribery probe focused on Asia.

Some traders said there were risks that the broader European equity rally over the past 1-1/2 years could stall on worries about a possible economic slowdown in China and tensions between Western powers and Russia over Ukraine.

The FTSEurofirst 300 is 2.3 percent off its 5-1/2-year peak of 1,353.47 points hit in late January, and has experienced sharp swings up and down over the last two months.

Fabrizio Quirighetti, economist and fund manager at Swiss bank SYZ, said continuing uncertainty over the economic and political outlook could create near-term volatility.

However, he expected stock markets to rise in the long term, helped by an ongoing economic recovery in Europe.

"Even if there is a certain caution surrounding financial markets at present, equities should continue to be supported by the positive outlook for developed economies," he said.

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Europe bourses in 2014: link.reuters.com/pap87v

Asset performance in 2014: link.reuters.com/gap87v

Today's European research round-up

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^< ($1 = 0.7254 euros) (additional reporting by Sudip Kar-Gupta; Editing by Pravin Char)

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