* FTSEurofirst 300 up 0.5 pct, Euro STOXX 50 up 0.2 percent
* Euro STOXX 50 closes at new 2-1/2 year high
* Europe's earnings momentum improves, but still negative
* Philips, Accor, Whitbread gain after upgrades
By Alistair Smout
LONDON, Oct 11 European stocks edged higher on
Friday, building on a rally in the previous session, as
investors hoped an agreement would finally be reached in
Washington on the U.S. debt ceiling which would avoid a chaotic
At the close, the FTSEurofirst 300 index of top
European shares was up 0.5 percent at 1,250.85 points, after
surging 1.7 percent on Thursday.
The euro zone's blue-chip Euro STOXX 50 index
was 0.2 percent higher at 2,974.28 points - new 2-1/2 year
Stocks around the world had lost ground in the past three
weeks after an impasse in U.S. budget talks led to a partial
government shutdown and sparked concerns about the extension of
Washington's borrowing authority beyond an Oct. 17 deadline.
On Thursday, President Barack Obama and Republican leaders
appeared ready to end the deadlock. One senior Republican said
an agreement could come on Friday.
After having dropped seven of the previous nine sessions,
the FTSEurofirst has rebounded, adding 2 percent over the last 2
"Over the last few days we've seen something of a turnaround
on optimism that the debt ceiling will get raised, and at least
there'll be a temporary measure if not a permanent measure. The
confidence seems to be returning to the market," Manoj Ladwa,
head of trading at TJM Partners, said.
The Euro STOXX 50 Volatility index, known as the
VSTOXX, was down 8 percent, indicating a drop in investors' risk
aversion. Europe's widely-used gauge of investor sentiment,
which is based on put and call options on Euro STOXX 50 stocks,
has fallen 21.7 percent since a peak hit on Wednesday.
"Even though investors get nervous when political tensions
rise, the backdrop for equities remains quite positive: very
accommodative central banks, improvement on the macro front, and
relatively good corporate fundamentals," said Jeanne
Asseraf-Bitton, head of global cross-asset research at Lyxor
Asset Management, which has $98 billion under management.
"It's sort of a 'sweet spot' for stocks. Now, with the
earnings season set to start, we need to see an improvement in
the earnings momentum. It has improved lately in Europe,
although it remains negative for now."
Europe's earnings momentum - analyst forecast upgrades minus
downgrades as a percentage of total - has recently improved,
from minus 3.2 percent in July to minus 2.1 percent currently,
data from Thomson Reuters Datastream shows.
Many of the top gainers were spurred by upgrades. Philips
gained 3.1 percent after being raised to "buy" from
"neutral", while Costa-owner Whitbread and hotel
operator Accor rose 3.1 percent and 1.9 percent
respectively after receiving upgrades from Citi.