European shares higher in choppy pre-ECB trade

on August 02 2012 7:53 AM

European shares rose on Thursday, buoyed by banking sector gains in a volatile trading session as investors tried to assess the likelihood of concrete policy action from the European Central Bank.

Trading volumes were below average as many investors held off from taking up new positions ahead of the outcome of Thursday's ECB meeting, taking place after the bank's president pledged to do whatever it takes to save the euro.

French bank BNP Paribas led gains among lenders after reporting a smaller-than-expected drop in profits, while German cosmetics group Beiersdorf also rose, offsetting a slump in utility Veolia.

The FTSEurofirst 300 index rose 0.6 percent to 1,074.41 points, while the Euro STOXX 50 index rose 0.8 percent to 2,350.27 points, Volumes on the FTSEurofirst were at just 24 percent of their 90-day average.

The STOXX European banking index rose 0.9 percent, with BNP up 2.3 percent.

Beiersdorf, which makes Nivea skin care products, topped the FTSEurofirst 300's leaderboard with a 4.8 percent gain after the company increased its outlook for 2012 profits.

Michel Juvet, chief investment officer at Swiss bank Bordier, said he has an "overweight" position on European equities, partly because he felt the ECB would take new steps to tackle the euro zone crisis, such as restarting its purchases of European government bonds.

"Valuations are cheapest among European equities. There are a lot of expectations on the ECB, and at the very least they should reopen their bond-buying programme," said Juvet.

VEOLIA SINKS

French utility Veolia was the worst performer on the FTSEurofirst 300, slumping by 9 percent after reporting results that missed forecasts.

Bank of America Merrill-Lynch cut its rating on the stock to "neutral", saying that estimates for Veolia's 2012 results could also be reduced.

Some traders were sceptical over what might emerge from the ECB meeting, due to persistent signs of disagreement among policymakers over how to deal with the spreading debt crisis.

Expectations that the ECB may announce steps to lower sovereign borrowing costs for Spain and Italy have been tempered by Germany's opposition to exceptional policy measures. That would include giving the euro zone's future ESM rescue fund a full banking licence, which that would let it borrow from the ECB to fund government bond purchases.

"They've got to announce resuming their bond purchases. But we need to see more decisive action over how they're going to resolve some of the longer-term issues. We still favour selling into the rally," said Darren Easton, director of trading at London-based Logic Investments.

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