European shares rise but Fed's tougher tone limits gains

Thu Oct 30, 2014 1:33pm EDT

(Updates with closing prices, details)

* FTSEurofirst 300 up 0.6 pct, Euro STOXX 50 up 0.5 pct

* Alcatel shares rise in short covering rally

* Fugro sinks for second day after scrapping dividend

By Blaise Robinson

PARIS, Oct 30 (Reuters) - European stocks ended higher on Thursday following a roller-coaster session, as positive corporate results and strong U.S. growth figures helped offset the Federal Reserve's tougher tone on policy.

Earnings helped lift sentiment, with Renault gaining 2.9 percent after the automaker posted a rise in third-quarter revenue and upgraded its European auto market growth forecast for the full year.

Dutch chip equipment maker ASM International surged 13 percent after reporting strong orders and posting quarterly results that traders said were above analysts' forecasts, in a sharp contrast with recent disappointing results and outlooks in the tech sector.

Alcatel-Lucent jumped 16 percent after the telecoms gear maker said it had squeezed out more costs to improve its gross profit margin to a better-than-expected 34 percent, sending hedge fund short sellers scrambling to unwind negative bets on the stock.

According to data from Markit, 11 percent of Alcatel's shares are out on loan, making it one of the most shorted stocks in Europe.

So far in Europe's earnings season, 36 percent of companies have reported results, of which 67 percent managed to meet or beat profit forecasts, and 59 percent met or beat revenue forecasts, according to Thomson Reuters StarMine data.

In absolute terms, profits are up 7.1 percent, while revenues are up 0.1 percent, highlighting the fact that Europe's earnings rebound has mostly been coming from cost-cutting and lower financing costs.

Bucking the trend on Thursday, Dutch marine services and engineering group Fugro, which serves the oil and gas industry, sank for a second day after it scrapped its 2014 dividend and warned it faced more pressure on profits in a rapidly worsening oil and gas market. The stock is down about 40 percent in two sessions.

The FTSEurofirst 300 index of top European shares ended 0.6 percent higher at 1,327.58 points. The index has risen about 9 percent since a 13-month low hit on Oct. 16.

As expected, the U.S. central bank on Wednesday ended its stimulative quantitative easing scheme, but a relatively hawkish tone to the accompanying statement prompted investors to rethink the consensus that the first U.S. interest rate hike would be late in 2015.

However, better-than-expected U.S. growth figures helped offset worries over the outlook for interest rates. Data showed on Thursday gross domestic product grew at a 3.5 percent annual pace.

"This is a key step for the Fed, and despite market jitters in the short term, it's a necessary move as the U.S. economy is in a pretty good shape," said Jeanne Asseraf-Bitton, head of global cross-asset research at Lyxor Asset Management.

"The global economy doesn't need more liquidity at this point, it needs economic growth."

The Fed's bond-buying programme has been strongly supportive of risky assets such as equity markets worldwide in the past two years, with the FTSEurofirst 300 up about 40 percent since mid-2012.

European stock markets seen as the most risky underperformed on Thursday, with Spain's IBEX up 0.2 percent, Portugal's PSI 20 down 1.5 percent and Greece's ATG down 2.8 percent.

"The biggest risks for us are in Europe. That's where the tensions are. Germany is slowing down, and the ECB has still to deliver," said Cyriaque Dailland, fund manager at Paris-based Convictions Asset Management.

The European Central Bank said on Thursday it had chosen Deutsche Bank, ING, State Street and Amundi to help carry out purchases of securitised private debt, which it expects will start in November as a key part of its stimulus measures to stave off deflation.

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 Alexandre Boksenbaum-Granier; Editing by Emelia Sithole-Matarise and Andrew Roche)

 
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