European shares inch up after Putin comments

Thu Aug 14, 2014 12:26pm EDT

* FTSEurofirst 300 up 0.3 pct, Euro STOXX 50 up 0.1 pct

* Dovish comments from Putin help market pare losses

* Euro STOXX 50 halted by strong resistance level

* Recent market sell-off a buying opportunity -Saxo's Garnry

* Equity risk premium well above long-term average -ING IM

By Blaise Robinson

PARIS, Aug 14 (Reuters) - European stocks inched higher on Thursday, turning positive after Russian President Vladimir Putin made comments seen as conciliatory, though gains were limited by weak German and French economic data.

Data showed Germany's economy suffered a surprise contraction - its first in more than a year - in the three months to June, and France slashed its growth forecasts for this year and next after its economy failed to grow in the second quarter.

The pan-European FTSEurofirst 300 index ended 0.3 percent higher at 1,329.14 points, adding to this week's tentative rebound.

The euro zone's blue-chip Euro STOXX 50 index gained 0.1 percent to 3,058.16 points. The benchmark's rise on Thursday was halted by a strong technical resistance at around 3,071 points, representing the 38.2 percent Fibonacci retracement of the index's recent two-week slide.

Speaking to Russian ministers and members of parliament in Crimea, Putin said Russia would stand up for itself but not at the cost of confrontation with the outside world. He also said Russia would do everything in its power to end the conflict in Ukraine as soon as possible.

Several traders said the market reacted positively to the comments.

European stocks have tumbled in the past few weeks, with the FTSEurofirst 300 losing as much as 7.4 percent between late June and last week while Germany's DAX dropped as much as 11 percent, knocked by fears of an escalation of the Ukrainian crisis and tensions between the West and Moscow.

"The recent decline in the DAX looks a bit exaggerated, given that the nature of the current sanctions against Russia is not really having a major impact on German companies," said Peter Garnry, head of equity strategy at Saxo Bank in Copenhagen.

"For me, the recent plunge in European equities is a good opportunity to increase exposure to the region, and especially to German equities. Today's GDP figure for Germany is weak, but not alarming, and overall global growth is still expected to be around 3 percent this year, so things aren't that bad for equities."

The German market's underperformance has dragged down the average price-to-earnings ratio of local shares to a level not seen since October 2013, according to data from Thomson Reuters Datastream.

The MSCI Germany index trades at 12 times expected earnings while the MSCI Europe trades at 13.6 times earnings, making Germany's P/E ratio relative to Europe the cheapest in nearly 10 years, data shows.

By comparison, Wall Street's S&P 500 trades at 15 times expected earnings.

"The DAX is very attractive if you want to buy something cheap, especially when we compare this to U.S. indices," said Naeem Aslam, chief market analyst at Ava Trade, in Dublin.

Germany's weak GDP data pushed down German 10-year bond yields, which briefly traded below 1 percent for the first time ever, reflecting bets on fresh stimulus from the European Central Bank.

While the weak data clouded the macroeconomic picture in the euro zone, it was also seen boosting the chances of an ECB move to shore up the economy via an asset purchase programme, which could drive up equity prices in the long run.

Robust earnings from a number of German companies also helped stocks on Thursday, with TUI AG rallying 4.1 percent after saying it was very confident its full-year results will reach the upper end of its target forecast after quarterly profits almost doubled.

The recent correction in equities worldwide has boosted the asset class's risk premium to between 100-200 basis points above their long-term average, Patrick Moonen, senior multi asset strategist at ING IM said.

"Taking risk in equities is well rewarded: we expect that over the next one or two years, these risk premiums will gradually normalise," Moonen wrote in a research note.

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 Francesco Canepa and Sudip Kar-Gupta in London; editing by John Stonestreet)