European shares steady as sanctions risk mutes earnings optimism

Tue Jul 29, 2014 7:03am EDT

* FTSEurofirst 300 index little changed

* GKN, Next advance after earnings reports

* Caution on concerns of more sanctions against Russia

By Atul Prakash

July 29 (Reuters) - European shares steadied on Tuesday, with earnings reports from companies such as British engineer GKN offset by the threat to the region's economy from any more sanctions against Russia by the West.

GKN surged 7 percent after its car parts supply division boosted first-half profits, while clothing retailer Next gained 2.6 percent after raising its guidance for annual sales and profit. Telecom firm Orange rose was up 0.3 percent after results.

According to Thomson Reuters StarMine data, 32 percent of companies in the STOXX Europe 600 index have reported second-quarter results so far, of which 60 percent have met or beaten market expectations.

"Going forward, the earnings season should be decent and I expect more surprises on the upside than on the downside. The economy generally appears to be a lot stronger," Peter Dixon, equity strategist at Commerzbank, said.

"It would be a very positive market environment. However, we do appear to be sailing into some geopolitical headwinds that might increase volatility in the coming weeks and months."

The FTSEurofirst 300 index of top European shares was up 0.06 at 1,370.46 points by 1024 GMT, as markets remained cautious about events in Ukraine and sanctions on Russia.

Oil major BP fell 1.1 percent despite posting a 34 percent increase in its profit. BP said more sanctions "could have a material adverse impact" on its joint venture in Russia.

BP is by far the largest foreign investor in Russia through its 19.75 percent stake in Russia's largest oil producer Rosneft , which accounts for about a quarter of BP's output.

"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."

U.S. and European leaders agreed on Monday to impose wider sanctions on Russia's financial, defence and energy sectors as Ukraine said its forces advanced towards the crash site of Malaysian flight MH17.

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 the downside, carmaker Renault fell 3.7 percent as its sales and cash flow suffered ahead of the replacement of key models.

Deutsche Bank fell 0.2 percent. It reported a 16 percent increase in quarterly pre-tax income, but the spectre of costly litigation and settlements cast a shadow over results, with the bank booking 470 million euros ($631 million) in litigation-related quarterly charges and topping up reserves for future litigation by 22 percent to 2.2 billion euros.

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

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

Today's European research round-up (1 US dollar = 0.7444 euro) (Additional reporting by Alistair Smout; Editing by Ruth Pitchford)