Buoyant Swiss blue-chips help Europe stocks extend rally

Tue Jun 10, 2014 12:55pm EDT

(Updates with closing levels)

* FTSEurofirst 300 up 0.3 pct, Swiss SMI up 1.1 pct

* Switzerland's SMI index hits 6-1/2 year high

* "Overbought" Euro STOXX 50 up 5.7 pct in 3 weeks

By Blaise Robinson

PARIS, June 10 (Reuters) - European stocks inched up on Tuesday, extending a three-week rally, led by gains in defensive Swiss blue-chips such as pharma group Novartis and food giant Nestle.

The FTSEurofirst 300 index of top European shares ended 0.3 percent higher at 1,398.18 points, led by Novartis and Roche, both up 2 percent, as well as Nestle, up 0.9 percent, stocks seen as defensive due to the resilience of their results throughout economic cycles.

"It's a positive sign to see defensive sectors gaining traction. Not just cyclicals are in vogue. It confirms that the bull trend is healthy and should last for a while," said Alexandre Tixier, analyst at TradingSat, in Paris.

"Resilient trading volumes are also a positive sign, with more and more retail investors getting in. The overall picture eclipses the fact that charts might show 'overbought' conditions in the short term."

The Swiss benchmark index SMI gained 1.1 percent, hitting a 6-1/2 year high, while the euro zone's blue-chip Euro STOXX 50 index ended 0.3 percent higher, at 3,313.80 points.

The Euro STOXX 50, which has surged 5.7 percent in the past three weeks - boosted by the European Central Bank's fresh measures to support the region's economic recovery - slipped into "overbought" territory on Tuesday.

Its relative strength index (RSI), a widely used momentum indicator, hit 71, with 70 and above considered "overbought", which could signal a pause in the rally or a pull-back in the short term.

Profit-taking was seen in Madrid, with the IBEX falling 0.1 percent. But despite Tuesday's dip, the Spanish benchmark remains up about 12 percent in 2014, well ahead of UK's FTSE 100 up about 1.6 percent over the same period, and Germany's DAX, up 4.8 percent.

Barclays France director Franklin Pichard said the backdrop of support from the ECB - which cut rates last week - and a pick-up in corporate merger and acquisition (M&A) activity would ensure that the rally should continue.

"Investors' appetite for stocks is still very strong, and the latest measures from the ECB is fuelling the rally started two years ago. We still have to see the economic impact from these measures, but meanwhile M&A activity should help keep the market rally alive," Pichard said.

Shares in Italian lender Banca Monte dei Paschi di Siena closed up 19.9 percent on the second day of a 5 billion euro ($6.8 billion) share sale. The shares had failed to trade throughout the session until the close but they had been indicated higher.

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

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

Today's European research round-up

(Editing by Alison Williams)