Earnings boost for European shares shortlived as markets wait sanctions

Tue Jul 29, 2014 4:32am EDT

* FTSEurofirst 300 flat

* Earnings from GKN, Range and Next provide a boost

* BP results see muted reaction after Russia warning

* Market cautious as EU prepares sanctions

By Alistair Smout

EDINBURGH, July 29 (Reuters) - European shares were unchanged on Tuesday, as encouraging corporate results were offset by the threat of economic fallout from more sanctions against Russia.

Parts maker GKN rose 6.5 percent as growth in its car business offset adverse currency effects. Telecom company Orange and UK-listed fashion retailer Next also rose after results.

However, carmaker Renault fell 3.2 percent. Its profits beat expectations, but cost-cutting helped to put a gloss on falling sales.

After 32 percent of companies reported results, 60 percent of STOXX Europe 600 companies have beaten or met expectations.

The pan-European FTSEurofirst 300 was steady at 1,369.12 points by 0812 GMT, giving up earlier gains as markets remained cautious about the situation in Ukraine.

BP rose 0.4 after posting a 34 percent increase in profit. But its gains were limited by the prospect of further sanctions on Russia, which it said "could have a material adverse impact" on its joint venture in the country.

Tony Cross, market analyst at Trustnet Direct, said that the threat of sanctions was taking the shine off an otherwise impressive update.

"I would have thought a 1 percent to 2 percent over-performance even as some kind of short-term relief rally could have been justified," Cross said.

European Union member states were expected to seek a final agreement on Tuesday to take stronger measures that would include closing the bloc's capital markets to Russian state banks.

On Monday, five Western leaders agreed to impose wider sanctions on Russia after a Malaysian airliner was shot down over territory held by pro-Moscow rebels in eastern Ukraine. Markets worried that the move will provoke economically damaging tit-for-tat measures from Moscow.

"Politicians are under increased pressure to implement much more aggressive sanctions, which not only run the risk of retaliation from Russia but also might hurt the European economy itself," Markus Huber, senior sales trader at Peregrine & Black, said.

"It wouldn't come as much of a surprise if stocks would at least temporarily enter a consolidation pattern with ... range-trading appearing likely overall"

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

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

Today's European research round-up

(Editing by Larry King)