European shares start month with aplomb, BNP Paribas buoyant

Tue Jul 1, 2014 12:44pm EDT

* FTSEurofirst 300 up 0.9 pct

* BNP Paribas rises on relief at U.S. sanctions settlement

* Chinese data lifts mining sector

* BES shares volatile after short-selling ban

By Tricia Wright

LONDON, July 1 (Reuters) - European shares began the month with a gain, as BNP Paribas rose on relief it had settled a U.S. sanctions case and mining companies rallied after encouraging economic data came out of China, the world's top metals consumer.

The pan-European FTSEurofirst 300 index closed up 0.9 percent at 1,382.31 points - notching its biggest one-day percentage gain since May 8.

BNP Paribas rose 3.6 percent in trading volume of almost twice its 90-day daily average. It had lost about 20 percent - or $21 billion of its market value - since Feb. 13 when it announced the provision for the fine.

The French bank pleaded guilty to two criminal charges and agreed to pay almost $9 billion to resolve allegations that in many financial dealings it violated U.S. sanctions against Sudan, Cuba and Iran.

Analysts and investors said the stock could now recover ground lost over the last few months.

"The size of the fine we knew, the reaction is more to do with BNP's extremely reassuring comments and the efforts made to protect the dividend. The bank is keeping its 2015 targets, so this must mean they enjoyed a very good first half of the year," Montsegur Finance fund manager Francois Chaulet said.

Mining stocks were also in demand as upbeat factory activity data from China reinforced signs of stabilisation in the economy.

Rio Tinto was among the best performers, up 3 percent, after falling about 6 percent this year - underperforming a 4.8 percent rise for the mining sector as a whole.

An upgrade to "buy" from BofA Merrill Lynch, citing factors including valuation grounds, also lent support. Rio is on a 12-month forward price/earnings ratio of 9.6 times, against a long-running average of 12.3 times.

"Valuation is now compelling and we think that iron ore, a key driver for Rio, is bottoming. Concerns on Chinese real estate persist but our house view is that these are manageable and that the government will be successful in walking the fine line between over-stimulating and an abrupt slow down," BofA ML analysts said in a note.

BES BOUNCES

Banco Espirito Santo (BES) rebounded from near a 12-month low on Tuesday as the Portuguese bank tried to allay concern over financial troubles at its parent company and possible losses at its Angolan unit. The stock jumped 13.8 percent.

A 40 percent drop in BES stock over the past three weeks led market regulators in both London and Lisbon to impose a ban on short-term selling of the bank's shares.

Short selling, which bets a stock will lose value, can cause shares to fall faster, because short sellers borrow shares, sell them, then buy them back for less than they sold for.

Commenting on the broader market trend, McLaren Securities' managing director Terry Torrison said he expected European stock markets to trade sideways in the usually quiet summer months of July and August before rising more sharply towards the end of 2014.

Other analysts also said the market's longer-term outlook remained positive.

Even though data on Tuesday showed that manufacturing growth had eased within the euro zone currency bloc, analysts said new economic stimulus measures from the European Central Bank would support the region's stock markets.

"I think people will still buy the market on the dip," Central Markets Investment Management head of trading Darren Courtney-Cook said.

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

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

Today's European research round-up (Reporting by Tricia Wright and Sudip Kar-Gupta; Editing by Larry King and Pravin Char)

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