European shares rise, HSBC, energy stocks lead

By Peter Starck

FRANKFURT, May 12 (Reuters) - European shares rose in quiet trade on Monday led by HSBC (HSBA.L), Europe's biggest bank, on better-than-expected results, and energy stocks on the back of high crude oil prices.

HSBC rose 1.9 percent after reporting a year-on-year rise in quarterly profit as growth in Asia and elsewhere helped counter a $3.2 billion bad-debt charge related to its U.S. consumer finance business. Some analysts had expected a quarterly loss.

"Group profit up on Q1, 2007...is a claim few banks in Europe will be able to make," Collins Stewart said in a note. "HSBC remains a safe haven and core holding for us."

Collins Stewart rates HSBC "buy" with a target price of 999 pence.

HSBC shares were the biggest positive weight on the FTSEurofirst 300 .FTEU3 index of top European shares, which rose 0.3 percent to 1,346.47 points, after posting its first weekly loss in a month last week.

Volumes were thin on Monday due to a partial holiday in many European countries. "Mostly we've been watching Wall Street," one Germany-based trader said.

Energy stocks underpinned the gains, with France's Total (TOTF.PA) up 1.4 percent and BP (BP.L) 1.1 percent higher. U.S. June crude oil futures CLM8 hit a record $126.40 a barrel while Brent LCOc1 remained in sight of Friday's record highs.

"The high oil price is helping the oil sector and the commodity sector is also doing well, but the more the oil price rises, the more it becomes a problem for the overall economy so it's not universally bullish," said Ronan Carr, equity analyst at Morgan Stanley.

Overall, Morgan Stanley said investors should be cautious.

"This is strength to sell into. We think we are very early in the downgrade cycle," the U.S. investment bank said in a European equity strategy note.

RIGHTS ISSUE?

The FTSEurofirst has risen 12.3 percent since hitting a 2-1/2 year low in mid-March but remains down 10.5 percent for the year to date.

On Monday, gainers on the index outnumbered losers by about three to two.

Among heavyweight decliners, Barclays (BARC.L) fell 1.5 percent ahead of an interim trading update on Thursday expected to disclose whether the British bank plans to go ahead with a rights issue.