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European shares supported by earnings, German coalition deal
November 27, 2013 / 8:49 AM / 4 years ago

European shares supported by earnings, German coalition deal

* FTSEurofirst 300, DAX both up 0.2 pct

* Colruyt leads gainers after strong first half

* Accor disappoints investors banking on more cost cutting

By Toni Vorobyova

LONDON, Nov 27 (Reuters) - European equities edged higher on Wednesday, supported by a long-awaited coalition deal in Germany and by a trickle of solid earnings from the likes Belgian discount grocer Colruyt.

German conservatives and the centre-left Social Democrats (SPD) finally agreed to a “grand coalition” after all-night talks, paving the way for Chancellor Angela Merkel to form a government by Christmas.

“Markets tend to take every sign of solace as a positive so I wouldn’t exclude that the markets react positively. But it’s not groundbreaking news because ... most of the details ... are very much in line with what was expected,” said Gerhard Schwarz, head of equity strategy at Baader Bank.

“One could say it’s fostering somewhat the consumer side because we are getting a minimum wage ... Germany is getting a more domestically-focused economy. It’s not happening overnight but this could be one element of appeal for equity investors.”

The German DAX was up 0.2 percent at 9,311.29 points by 0828 GMT, closing in on a record high of 9,323.44 points hit earlier this week.

The pan-European FTSEurofirst 300 gained 0.2 percent to 1,297.31 points.

Volumes were likely to be light ahead of Thanksgiving holiday in the United States on Thursday.

Colruyt led the gainers, up 5.8 percent after posting a stronger than expected first half profit, although the Belgian firm was cautious on outlook.

The budget grocer’s strong performance highlighted the precarious nature of the euro zone recovery. Many companies are still reliant on restructuring and cost cuts for any earnings growth as analyst forecast downgrades have outnumbered upgrades for the past 2-1/2 years.

Shares in Accor dropped 4.7 percent after Europe’s largest hotel group said on Wednesday it would divide its hotel business in two in a bid to improve performance rather than unveiling accelerated cost cuts as some traders had expected.

“At this stage we have a lot of questions ... Before this announcement investors were generally expecting a new cost cutting plan and a faster transformation of the group,” analysts at Societe Generale said in a note.

“On the basis of what we know so far, our first thought is that the market may be disappointed.”

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