Ukraine worries keep lid on European shares, outweigh earnings

Fri Jul 18, 2014 12:36pm EDT

* FTSEurofirst 300 ends flat after late recovery

* 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 ended flat on Friday as the prospect of heightened tensions between Russia and the West capped appetite for risk assets and offset strong earnings reports from Sweden.

Investors were reluctant to open new long positions after a passenger plane was shot down over Ukraine on Thursday, and fears were that the situation would deteriorate at the weekend.

But selling pressure eased and volatility fell during the day with the loss of the Malaysian jet with 298 people aboard also seen as intensifying international pressure to resolve the worst crisis between Russia and the West since the Cold War.

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

"It's so serious that maybe people will pull back from the conflict now," Peregrine & Black senior sales trader, Markus Huber, said.

The pan-European FTSEurofirst 300 index ended flat at 1,363.11 points, with a rebound on Wall Street helping the index erase most of the session's losses in late trade.

The Euro STOXX Volatility index, which measures the price of options on euro zone blue-chips, effectively gauging investors' fears of future losses, fell 6.3 percent after hitting a two-month high in early trading.

SWEDISH SUPPORT

The market was supported 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 8.2 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.

Stockholm's OMXS index rose 0.8 percent.

Swedish truck maker Volvo bucked the trend, falling 5.4 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 across the sector, with Daimler and CNH Industrial down 1.7 percent and 0.9 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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