* FTSEurofirst 300 up 0.2 pct, Euro STOXX 50 down 0.3 pct
* Profit taking hits banks after strong start to 2013
* Go 'long CAC 40/short DAX', SocGen strategists recommend
* Worries brew about impact of potential currency war
By Blaise Robinson
PARIS, Jan 23 European shares inched higher on
Wednesday, moving back towards a near two-year high hit
recently, although a bout of profit taking on bank and insurance
shares limited the market's rise.
Corporate results were in the spotlight, with shares of
Unilever gaining 3.1 percent to a record high after the
Anglo-Dutch consumer goods group posted better-than-expected
Novartis added 4.1 percent after the Swiss
pharmaceuticals group unveiled a reassuring sales growth
The FTSEurofirst 300 index of top European shares
closed 0.2 percent higher at 1,167.65 points, just a few points
below a peak of 1,170.29 points hit two weeks ago, a level not
seen since early 2011.
However, the euro zone's blue chip Euro STOXX 50 index
fell 0.3 percent to 2,708.28 points, dragged down by
a fall in financial shares after lofty gains so far this year.
Banco Popolare fell 4.1 percent, Credit Agricole
lost 2.5 percent and Aegon shed 2.2 percent.
Despite the day's losses, the STOXX euro zone banking index
is still up 10 percent in 2013, by far the best sector
"The newsflow on the political and macro side is very thin,
so there's a bit of hesitation to chase the market higher and
we're seeing some rotation between sectors," Saxo Banque senior
sales trader Alexandre Baradez said.
"We need some kind of big positive catalyst,
better-than-expected Apple results for instance, or good macro
U.S. tech major Apple was due to report quarterly
results later on Wednesday.
Around Europe, UK's FTSE 100 index ended up 0.3
percent and Germany's DAX index closed 0.2 percent
higher, whereas France's CAC 40 dipped 0.4 percent, and
Italy's FTSE MIB dropped 0.8 percent.
Following the DAX's outperformance last year, Societe
Generale strategists recommend a 'long/short' pairs trade with a
long position on the CAC and a short position on the DAX to take
advantage of the combination of more attractive valuation levels
for French stocks and the likelihood of a further drop in the
risk premium in Europe.
"Valuations-wise, the French market appeared more depressed
than the German one, on the basis of cyclically adjusted
valuation ratios," the strategists wrote in a note.
While the DAX has almost reached 2007 levels, the CAC is
still about 40 percent below its 2007 highs.
Some analysts, however, say Germany is still attractive and
see other pockets of value in European equities.
Investors have been scooping up European shares in the past
two months - with the Euro STOXX 50 surging 12 percent since
mid-November - as fears about a potential break-up of the euro
zone abated while global macroeconomic data improved.
But the rally has lost steam in the past week, as investors
await further confirmation from macro data and from companies
that the worst of Europe's economic crisis is over.
CURRENCY WAR RISK
"There's also a bit of nervousness coming from the
sabre-rattling on the forex side," Saxo's Baradez said.
"Investors are worrying about the risk of a currency war and
the impact that it could have on the equity rally."
A number of central bankers have recently spoken out over
the risk of competitive devaluations as policymakers in
countries such as Japan and the United States have been taking
aggressive action to reflate their economies.
Concerns about a currency war escalated on Tuesday when the
Bank of Japan, bowing to domestic political pressure to act on
growth, doubled its inflation target to 2 percent and backed it
with open-ended asset purchases to pump money into the economy.
"A currency war would bring volatility to European
companies' results - just think of all the exporters which have
a big chunk of their sales in U.S. dollars - and it would force
investors to review their regional allocation. So it's
definitely a big risk for stocks," said David Thebault, head of
quantitative sales trading at Global Equities.
"All in all, it's time to be more selective in the stocks we
pick, and it's time to buy volatility to protect the portfolios.
Volatility has fallen so much, but there are still plenty of
risks out there."