European shares edged higher at midday on Friday and remained on course for their sixth week of gains, with U.S. GDP figures and Greek debt talks in focus and charts indicating more gains after a recent breach of a strong resistance level.
Investors took money out of traditionally cyclical stocks and bought defensives. The STOXX Europe 600 Utilities index .SX6P, up 0.8 percent, was the best performer. Banks .SX7P and miners .SXPP, among the biggest gainers on Thursday, fell 0.3 percent and 0.2 percent, respectively.
French banks fell after JP Morgan downgraded BNP Paribas (BNPP.PA) to neutral and Credit Agricole (CAGR.PA) to underweight. Their shares were 2.3 percent and 1.8 percent lower, respectively.
The FTSEurofirst 300 .FTEU3 index of top European shares was up 0.1 percent at 1,052.50 points at 5:55 a.m. ET, after falling to a low of 1,046.44 earlier. It rose 1.2 percent on Thursday.
Charts showed the recent bull trend was intact and the market had potential to scale new highs in the near term.
Bill McNamara, technical analyst at Charles Stanley, said the FTSEurofirst 300 index had reached levels where it was looking relatively overbought, but that should not necessarily be interpreted as a sell signal.
The break through resistance at 1,028 has been followed by further upside and although there are plenty of headwinds, there is still no compelling evidence to suggest that a top has been reached, he said.
Volumes remain robust and the short-term uptrend is intact. A Fibonacci-based projection, based on the first wave of the rally off the lows, gives an upside target of around 1,073.
Investors largely avoided strong bets ahead of the U.S. economic numbers and the result of debt swap talks between Greece and private creditors. Greece also needs to convince its euro zone partners and the International Monetary Fund to release a 130 billion euro package if it is to avoid a chaotic default.
We could see the market going higher if there was a positive outcome as far as the Greek debt talks are concerned, said Keith Bowman, equity analyst at Hargreaves Lansdown, although he cautioned a deal would not solve the broader issues of fiscal support across the union.
Across Europe, Germany's DAX .GDAXI rose 0.3 percent, Britain's FTSE 100 .FTSE fell 0.1 percent and Italy's FTSE MIB .FTMIB index fell 0.1 percent.
FOCUS ON U.S. GDP NUMBERS
Investors awaited the U.S. GDP report, due at 1330 GMT, which is expected to show growth accelerated to a 3 percent rate in the fourth quarter, from 1.8 percent in the third.
Analysts said that at the beginning of the fourth quarter some economic numbers had disappointed but the situation improved in late 2011. There are expectations that the fourth quarter GDP numbers will show that the world's biggest economy is not slowing down in line with Europe.
If you get disappointing GDP figures, investors will take profits and European stocks could fall about 1 percent. If it's better than expected, you could see a gain of 0.5 to 1 percent, said Koen De Leus, strategist at KBC Securities.
De Leus said those investors who have made a good profit, especially from financial and mining stocks, could consider taking about half of the money off the table. This is not a 'buy and hold' market, but a 'hit and run' market.
Citigroup, becoming increasingly confident in a U.S. recovery, recommended to buy European stocks such as SAP (SAPG.DE), Intercontinental Hotels (IHG.L) and LVMH (LVMH.PA).
The recent rally in the euro zone's blue-chip Euro STOXX 50 .STOXX50E has pushed its valuation ratio to a level not seen in six months, trading at 8.9 times 12-month forward earnings. But stocks are still cheaper against historical averages, with the 10-year average price-to-earnings ratio now at 11.8.
While worries surrounding debt-stricken Greece have been abating, investors' focus has been switching to Portugal, seen as the potential next domino in the euro zone debt crisis.
Portuguese government bond yields punched new euro-era highs on growing belief the country may follow Greece and require a second bailout. Italy, on the other hand, has enjoyed a decline in yields, mostly driven by demand from domestic banks awash with three-year loans taken out from the European Central Bank.