October 26, 2017 / 7:36 AM / a year ago

ECB, Spain boost STOXX as earnings trigger sharp moves

LONDON (Reuters) - European shares rose from four-week lows on Thursday, boosted by the European Central Bank’s decision to keep stimulus taps open and hopes of a breakthrough in the Catalan crisis, while third-quarter earnings triggered sharp moves in individual stocks.

The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, October 25, 2017. REUTERS/Staff/Remote

The pan-European STOXX 600 benchmark index rose 1.1 percent to 391.45 points with heavy gains across most sectors and trading centers, particularly in Germany where the DAX .GDAXI touched an all time closing high with a 1.4 percent rise.

The euro’s tumble provided European stocks with their biggest gains in over six weeks, as the ECB’s Mario Draghi said the bank would extend asset purchases until at least September 2018 at a reduced pace.

“Anything that suggests the euro isn’t going up in a straight line is potentially good news for European equities,” Michael Metcalfe, head of global macro strategy at State Street, told Reuters.

Sandrine Perret, European Strategist at Credit Suisse, said the move was likely to continue to fuel the bull market.

“The decision should lead to further strength for European equities,” she wrote in a note, adding that strong economic growth should bolster corporate earnings.

Spain's IBEX .IBEX closed up 1.9 percent as hopes of a breakthrough in the Catalan crisis fueled optimism among investors.

While shares in retailer DIA (DIDA.MC) slumped 4.8 percent to a five-year low after it issued a profit warning, most Spanish blue-chips posted substantial gains, notably heavyweight banks such as Banco Sabadell (SABE.MC) or Banco Santander (SAN.MC), both up 3.2 percent.

While stocks markets have seen very little volatility recently, the latest earnings season has triggered some outsized moves.

Nokia (NOKIA.HE) was the biggest faller on the STOXX, losing a spectacular 17.5 percent after the Finnish firm reported weaker-than-expected quarterly earnings.

“Difficult to say at this stage how much lower consensus could go given all the negative wording on 2018,” Morgan Stanley analysts said in a note.

Barclays (BARC.L) tumbled 7.4 percent in its biggest one-day fall since the Brexit vote in June 2016. The British bank posted worse than expected profit before tax due to a weak trading performance by its investment bank.

Deutsche Bank (DBKGn.DE) also reported a drop in investment bank revenue, although cost cuts lifted profit above analysts’ expectations. Its shares closed 0.9 percent lower. [nL8N1N110W]

Also in the banking sector, Nordea NDA.ST, the Nordic region biggest bank, sank 5.9 percent after saying it would miss its 2018 cost target and cut at least 6,000 jobs.

Heavy losses were offset by swings in positive territory like Franco-Italian chipmaker STMicroelectronics (STM.PA) which ended the day up 12 percent after raising its year-end outlook.

Other winners of the day included Finnish petroleum producer’s Neste (NESTE.HE), up 9 percent after its third-quarter results came in above expectations.

According to Thomson Reuters data, third-quarter earning growth expectations for the STOXX 600 have declined to 3.4 percent from around 10 percent expected in July.

A country breakdown shows that earnings of UK companies in the pan-European index are expected to rise 11.2 percent in the third quarter, compared to a fall of 11.8 percent seen for France and a 0.6 percent drop expected for Germany.

Italy’s earnings growth is seen at 35 percent.

Additional reporting by Danilo Masoni in Milan; Editing by Georgina Prodhan, Robin Pomeroy and Richard Balmforth

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