January 12, 2011 / 10:40 AM / 8 years ago

European shares rise sharply; Portugal auction eyed

* FTSEurofirst 300 rises 1.1 pct

* Banks rise on Portugal bond auction hopes

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Brian Gorman

LONDON, Jan 12 (Reuters) - European shares rose to their highest in 28 months on Wednesday, with expectations that a Portuguese bond auction will go well boosting banks with exposure to the region.

But most investors still believe Portugal will follow Greece and Ireland in requiring a bailout. Investors remain worried about contagion as the euro zone debt crisis continues. At 1001 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 1.1 percent at 1,159.41 points, and had hit 1,160.52, the highest since September 2008.

Portugal is set to tap investors for between 750 million euros ($972.1 million) and 1.25 billion euros and is seen paying record high premiums to place its debt, though bond buying by the European Central Bank should prevent yields from making a dramatic move higher. [ID:nLDE70A20B]

“I don’t have any problems believing the auction is going to go well, particularly as the EU as well as the Financial Stability Fund have indicated their support,” said Heino Ruland, strategist at Ruland Research, in Frankfurt, “and it is tiny.”

“Spanish banks, exposed to Portugal, are rising and so are French banks, exposed to Spain.”

Heavyweight banks to gain included Banco Santander (SAN.MC), BBVA (BBVA.MC), Intesa SanPaolo (ISP.MI), Societe Generale (SOGN.PA) and UniCredit (CRDI.MI), up between 4.4 and 6.4 percent.

Company earnings beating expectations is another factor helping to buoy markets, analysts say.

“The results season has started well. In Europe, we’re still in the first year of earnings starting to turn up,” said Philip Isherwood, European equities strategist at Evolution Securities.

“The short-term noise should is good and as the cycle develops higher earnings will continue. If you could scrape the macro politics off the screen, the macroeconomics and market fundamentals are pretty good.”

Across Europe, Britain's FTSE 100 .FTSE rose 0.6 percent, Germany's DAX .GDAXI and France's CAC40 .FCHI rose 0.5 and 1.2 percent respectively.

Portugal's PSI20 .PSI20 rose 1 percent; Spain's IBEX 35 .IBEX rose 3.4 percent.

Miners gained, helped by higher metals prices as the euro rose against the dollar.

Anglo American (AAL.L), Vedanta VED.L and Xstrata XTA.L rose between 2.1 and 2.7 percent.

Strength in oil prices also had a positive impact. Brent crude oil rose to $98 a barrel on Wednesday for the first time in 27 months as production shutdowns and growing global demand raised expectations of tighter supplies.

Spain’s Repsol (REP.MC), up 3.7 percent, was among the oil companies to gain.

SODEXO FALLS

Among individual companies, France’s Sodexo (EXHO.PA) fell 2.9 percent after it said it was cautious about the economic climate, though the catering services company kept its fiscal 2011 goals for higher sales and profits[ID:nLDE70A16V]

J Sainsbury (SBRY.L) fell 1.4 percent though strong sales of premium groceries and non-food ranges such as clothing helped it report a rise in Christmas sales. Analysts cited valuation concerns.

Bigger British rival Tesco (TSCO.L) fell 1.2 percent.

On the macroeconomic front, Germany’s economy rebounded last year at its fastest rate since reunification. [ID:nLDE70A1OB]

Later in the day, investors’ attention will turn to U.S. macroeconomic data, such as import and export prices. (Reporting by Brian Gorman. Editing by Jane Merriman)

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