* FTSEurofirst 300 down 7.93 points to 1,248.04
* Italian shares hit 2-year highs as Letta nears majority
* Tesco leads retailers lower after disappointing update
* Lufthansa slides after Deutsche cuts rating
By David Brett
LONDON, Oct 2 Italy's FTSE MIB rose on Wednesday
with Prime Minister Enrico Letta's growing chances of winning a
confidence vote, outpacing broader European shares which were
led lower by weakness in retailers after Tesco's results.
Italy's leading share index touched fresh two-year
highs of 18,259.84 following defections from media tycoon Silvio
Berlusconi's centre-right party that looked set to give Letta's
government the votes it needs.
The index was up 0.9 percent at 18,143.78 at 1105 GMT, led
by financial stocks. Lender Intesa San Paolo was up 4.3
percent and leading the gainers in Europe as Italy's bond yields
Technical analysts were bullish on Italy's FTSE MIB with
Chris Wright at Informa Global Markets saying the technical
picture is constructive.
"The recent bounce from 17,199.82 (Sept. 30 low) confirmed a
3-month bull trendline ... Any near-term dips are seen to be
supported by the bull trendline, currently at 17,284.36," he
Europe's FTSEurofirst 300, however, fell 7.93
points, 0.6 percent, to 1,248.04 by 1030 GMT, dragged lower by
Tesco. The world's third largest retailer was down 3.6 percent
after quarterly revenues flatlined as its turnaround plan failed
to meet expectations, prompting earnings downgrades with
implications for the wider market.
"There is very little valuation upside (for the broader
market) without an earnings recovery ... so you are looking at
slightly more downside risk than up if the earnings recovery
does not materialise," Robert Quinn, chief European equity
strategist at S&P Capital IQ, said.
Tesco's update took the shine off rival Sainsbury,
which reported rising sales growth, and weighed on the broader
retail sector, which fell 1.4 percent.
Food and beverage firms extended recent falls as the
sector deals with the fallout of Unilever's shock
profit warning late on Monday, with UBS the latest to cut its
rating on the consumer goods firm to "neutral" from "buy".
Unilever was down 1.8 percent, and 9 percent down in the
last 9 days.
Earnings worries also prompted falls in German airlines
Lufthansa and Air Berlin, which fell by as
much as 3.7 percent, after Deutsche Bank downgraded both stocks.
"We have ... come to the conclusion that the restructuring
programmes might take longer than expected, the demand situation
remains sluggish and current trading is difficult and capacity
discipline is fading," Deutsche said, referring to both
The travel and leisure sector shed 0.9 percent.
Most global stock indexes kicked off a new month and a new
quarter with gains on Tuesday as investors, for now, appeared
confident that a U.S. government shutdown, which threw hundreds
of thousands of federal employees out of work, would be
short-lived, but concerns remained.
"If Congress do not come to an agreement and the deadline
approaches for the U.S. to make interest payments on $12
trillion of outstanding bonds, traders will start to get
twitchy," Mark Ward, head of trading at Sanlam Securities, said.
"But it is worth remembering a U.S. payment default is the
absolute worst-case scenario. We are, however, reliant on
politicians, so anything is possible," he said.
Against the backdrop of political turmoil in Italy and
volatile market interest rates swayed by U.S. policy
uncertainty, the European Central Bank was expected to hold off
policy action on Wednesday but keep open the options of an
interest rate cut or a bumper cash injection.