SocGen, Axa help European stocks gain ground

Published 08/05/2009, 07:25 AM
Updated 08/05/2009, 07:30 AM
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* FTSEurofirst 300 up 0.5 pct, up for 14th time in 18 days

* Better-than-feared earns from SocGen, Axa boost financials

* Dip in oil prices weigh on energy shares

By Blaise Robinson

PARIS, Aug 5 (Reuters) - European shares were up 0.5 percent around midday on Wednesday, rising for the 14th time in 18 sessions as forecast-beating results from Societe Generale and Axa fuelled hopes of an earnings recovery.

At 1100 GMT, the FTSEurofirst 300 index of top European shares was up 0.5 percent at 944.19 points, led by strong gains in financials.

Shares in Societe Generale soared 5.7 percent after the bank posted a smaller-than-expected drop in second-quarter profits, helped by a surprisingly small bad debt provisions and an investment banking recovery.

Axa soared 5.6 percent after Europe's second largest insurer by market value posted a smaller-than-expected drop in half-year earnings.

"There is still room on the upside for stocks, because the credit market has been coming back to normal," said Jean-Claude Petit, head of equities at Barclays Wealth Managers France.

European credit spreads, reflected in indexes such as the investment-grade Markit iTraxx Europe index as well as the Markit iTraxx Crossover index, have sharply tightened since March.

"But mainly, the recent corporate earnings show that in the most difficult times, companies have managed to scale down costs and capital expenditures," Petit said.

"That means the results are better-than-expected and people are now expecting that, as soon as the economic recovery materialises, corporate results will improve faster than previously thought."

MORE BEATS THAN MISSED

According to Thomson Reuters data, so far 146 companies in DJ STOXX 600 have reported their quarterly results in the current earnings season, of which 75 beat estimates, 2 matched and 69 missed the estimates.

The second-quarter overall earnings growth rate for the STOXX 600 improved to minus 36.4 percent on Tuesday close from minus 40.4 percent a week ago.

Stronger-than-feared corporate earnings have given a second wind to a stock rally that wilted in June after a 38 percent gain in the FTSEurofirst 300 from its record low reached in early March.

Europe's benchmark index, now up 46 percent since its March floor, has surged 16 percent since July 10. But it is still down 42 percent from its multi-year peak touched in mid-2007.

Across Europe, the UK's FTSE 100 index was up 0.3 percent, Germany's DAX was up 0.1 percent and France's CAC 40 was up 0.6 percent.

Adidas added 6 percent as investors rewarded the sports equipment company's consensus-beating quarterly results and its plans to revamp its Reebok brand.

European airlines rose sharply, with British Airways up 8.1 percent and Lufthansa up 8.6 percent, after their American peers reported robust July traffic figures and Hong Kong's Cathay Pacific posted first-half profits, traders said.

On the downside, shares of oil majors lost ground as crude prices dipped. Repsol fell 0.7 percent and BP dropped 0.5 percent.

On the macroeconomic front, investors will keep an eye on U.S. ADP employment figures, due at 1215 GMT, ahead of key U.S. monthly jobs data due on Friday, as well as on ISM data, due at 1400 GMT.

"Should the U.S. ISM non-manufacturing index climb to 49 like its manufacturing counterpart, it would probably foster expectations that the U.S. recession is coming to an end," Commerzbank wrote in a note. (Additional reporting by Chris Steitz in Frankfurt; editing by Karen Foster)

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