Europe shares hit 9-month high on earnings momentum
by Atul Prakash

Reuters    Translate This Article
3 August 2009

* FTSEurofirst 300 up 1.6 pct

* Financials advance after HSBC results

* Energy, mining shares track firm commodity prices

LONDON, Aug 3 (Reuters) - European shares hit a nine-month high on Monday as financials advanced after earnings results from Europe's biggest bank HSBC while commodity shares tracked stronger crude and metals prices.

At 1110 GMT, the FTSEurofirst 300 index of top European shares was 1.6 percent higher at 943.14 points after touching 944.71, the highest level since early November.

The benchmark index, which slumped 45 percent last year following the worst financial crisis since the 1930s, has surged 46 percent from its lifetime low on March 9 on growing optimism about the prospects of recovery.

Investor sentiment has been boosted by generally positive earnings results. HSBC was the latest to announce figures ahead of a forecast.

Its shares rose 6 percent after the results, which showed that first-half profit halved from a year ago to $5 billion as it was hit by rising bad debts.

'We now have a very positive momentum. Better-than-expected economic data and company profits seem to have a positive impact on sentiment,' said Koen De Leus, analyst at KBC Securities.

'People don't seem to care that turnover is down. They are just looking at the bottom line,' he added.

The DJ STOXX bank index is now up nearly 150 percent since a floor in March and is up 42 percent this year. The sector, which is still down about 60 percent from its April 2007 peak, trades at a price-earnings (P/E) ratio of around 11, the highest since July 2007, according to Thomson Reuters data.

UBS jumped 6.5 percent on reports it may not have to pay a fine in settling a tax evasion dispute with the U.S. government.

Other banks were also higher with Standard Chartered Bank, Royal Bank of Scotland, BNP Paribas, Societe Generale, Credit Agricole and Natixis gaining 1.2-5.3 percent.

Shares in Barclays, Britain's second biggest bank, climbed 8.7 percent after it posted an 8 percent rise in half-year profit, but bad debts almost doubled to offset buoyant earnings from its enlarged investment bank.

'There seems to be no change to the optimistic mood at the moment. Rather than being concerned about the rally running out of steam, there is more a worry of missing the boat as the market powers ever higher,' said Philip Gillett, a trader at IG Index.

MACROECONOMIC DATA HELPS

The market also got a lift from positive figures. Purchasing managers' data showed British manufacturing activity grew last month for the first time since March 2008, benefiting from the fastest flow of new orders since November 2007.

And surveys showed Chinese factory growth accelerating in July, thanks to a revived domestic economy and slight pick-up in demand for its exports. The China purchasing managers index from brokerage CLSA hit a one-year high.

'Some consolidation or pause for breath seems due,' said Mike Lenhoff, chief strategist at Brewin Dolphin.

'However, I suspect that, on the back of an improving outlook for the global economy, another phase of re-rating is under way as equity markets plug into the forthcoming cycle of upgrading in expectations for GDP growth as well as for corporate earnings growth.'

Higher metals prices, driven by expectations of rising demand, helped miners. BHP Billiton, Anglo American, Antofagasta, Rio Tinto, Xstrata and ENRC rose 2.9-7.8 percent.

Energy stocks tracked crude oil prices CLc1, which rose 2 percent. BP, Royal Dutch Shell, BG Group, Tullow Oil, Repsol, Total and StatoilHydro added between 0.4 and 2.5 percent.

Germany's Metro, the world's fourth-largest retailer, fell 1.6 percent after the company said it expected retail sales to fall further in the coming months, mainly due to rising unemployment.

Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC-40 were up 1.6-1.7 percent.

(Editing by David Cowell)

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