Ukraine worries keep lid on European shares, outweigh earnings

Fri Jul 18, 2014 10:47am EDT

* FTSEurofirst 300 down 0.2 pct, trims gains for the week

* Investors wary after Malaysian plane downed over Ukraine

* Heightened international pressure seen helping end crisis

* Swedish stocks rise on earnings boost

By Francesco Canepa

LONDON, July 18 (Reuters) - European shares edged lower on Friday as the downing of a passenger plane over Ukraine stoked tensions between Russia and the West and outweighed some strong earnings reports from Sweden.

Uncertainty over how the incident will affect the conflict between the Ukrainian government and separatists meant many investors were reluctant to open new long positions ahead of the weekend in case the situation deteriorates.

But selling pressure was moderate and volatility low as the loss of the Malaysian airliner with 298 people aboard was also seen as intensifying international pressure to resolve the worst crisis between Russia and the West since the Cold War.

"People in the market are still worried that there will be an escalation in the conflict (following the plane crash)," Peregrine & Black senior sales trader, Markus Huber, said.

"But it's so serious that maybe people will pull back from the conflict now," he said.

Fighting between Kiev and pro-Russian separatists has killed hundreds in Ukraine since protests toppled its Moscow-backed president in February and Russia annexed the Crimea.

The pan-European FTSEurofirst 300 index was down 0.2 percent at 1,360.27 by 1430 GMT, taking its drop over the past two days to 1.2 percent and leaving it 0.6 percent higher on the week.

The Euro STOXX Volatility index, which measures the price of options on euro zone blue-chips, effectively gauging investors' fears of future losses, fell nearly 3 percent after hitting a two-month high earlier in the session.

SWEDISH SUPPORT

Losses were mitigated by a number of strong profit reports from Sweden, with mobile telecom gear maker Ericsson, home appliances firm Electrolux and Swedbank all reporting expectation-beating results.

Ericsson rose 8.4 percent, leading peers Alcatel Lucent and Nokia higher, as its results showed sales picked up at its networks unit thanks to growth in the Middle East, China, the United States and India.

"Ericsson's sales in the U.S. were very resilient," Kepler Cheuvreux analyst Sebastien Sztabowicz said, flagging a positive read-across for Alcatel ahead of its own quarterly results.

With 12 percent of companies in the Europe STOXX 600 having reported results so far this earnings season, 73 percent have beaten or met expectations, according to Thomson Reuters StarMine data.

"The market is so politically driven at the moment, which is bad news as it means we neglect fundamentals such as earnings," Huber said.

Stockholm's OMXS index rose 0.8 percent.

Swedish truck maker Volvo bucked the trend, falling 5.3 percent after posting a smaller-than-expected rise in profit after a slow rebound in demand in Europe left it with overcapacity.

It led a sell-off in truck makers, with Daimler and CNH Industrial down 2 percent and 1 percent respectively.

"You saw that for every major truck maker ... the recovery seems to have started later than anticipated," Natixis analyst, Kathleen Gailliot, said. "The potential is there but you have got to have a bit of improvement in confidence."

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

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

Today's European research round-up (Additional reporting by Alistair Smout; Editing by Louise Ireland)

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