* FTSEurofirst up 0.2 pct, hits fresh 4-mth high
* Investors shift to cyclicals from defensives
* Italy outperforms on ECB tailwinds, IBEX glitches
By Toni Vorobyova
LONDON, Aug 6 European equities touched fresh
four-month highs on Monday, with investors shifting into
financials from the more defensive drugmakers and food producers
after the European Central Bank opened the way for measures to
fight the euro zone debt crisis.
ECB President Mario Draghi last week laid out plans to buy
bonds to lower borrowing costs for Spain and Italy. Although the
plan was heavily conditional and markets were originally
disappointed by the lack of immediate intervention, the prospect
of eventual action has since helped drive down sovereign bond
yields and boost risk appetite.
"He put enough in place to tide the market over for the next
few months. He said he would be introducing more information
over the next few weeks... so you can easily get caught offside
by making the wrong decision," said Kevin Lilley, European
equities fund manager at Old Mutual Asset Managers.
"My overweight position is in financials and the good thing
is that financials are outperforming the cyclicals ... He is
showing that he will take the necessary action, so I think
people will become less risk averse as time progresses."
Euro zone banks added 0.8 percent, taking their
rebound over the past two weeks from an all-time low to around
21 percent, while insurers gained 2.4 percent. Other
cyclical sectors, such as autos also outperformed, while
healthcare and food sold off as investors
adopted a more pro-risk stance in their portfolios.
The improved sentiment helped the pan-European FTSEurofirst
300 was up 0.2 percent to 1,083.22 by 1016 GMT, hitting
levels not seen since early April after rallying 2.5 percent on
Friday and posting its ninth consecutive weekly gain.
The STOXX 50 index of euro zone bluechips rose
0.5 percent to 2,384.50, and technical strategist at SEB said
more gains could follow.
"An alternated wave count points towards possible further
gains up into the 2,422/2,499 Fibonacci projection area," they
said in a note, highlighting resistance at 2,398 ahead of that.
Germany's DAX, up 0.6 percent at 6,906.50 points, made its
way towards the psychologically key 7,000 mark, above which it
has only traded in two months since last August.
Trading on the Spanish bourse was halted due to a technical
glitch, but Italy - another possible beneficiary of ECB
action - outperformed other major markets with a 0.8 percent
Some sign of an easing of nerves in the crisis was industry
numbers showing Spanish and Italian equity funds posted their
biggest weekly inflows since the first quarter of 2011 last
week, even as Europe as a whole saw outflows.
With policymakers signalling a willingness to backstop
markets, strategists at Nomura suggested playing the market
through the 'value' style.
"We still see room for inexpensive, under-owned risk assets
to outperform in the second half ... Value in the global equity
space is robust and capturable - leading us to continue
emphasising a fairly cyclical- and higher-beta (1.2) global
Focus List," its strategists said, highlighting stocks including
car maker Daimler and miner Rio Tinto.
Euro zone woes, however, continued to resonate through the
second quarter earnings season, with 50 percent of European
companies missing expectations to-date against just 29 percent
of U.S. ones, according to Thomson Reuters StarMine.
Companies that make money outside Europe outperformed, with
Richemont topping the gainers board on Monday after the
Swiss-listed luxury goods maker said its first half net profit
could rise by as much as 40 percent thanks to strong demand from
Asia and emerging markets.