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Strong data propels European shares to 1-mth high

Published 07/01/2011, 01:00 PM
Updated 07/01/2011, 01:04 PM
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* FTSEurofirst 300 index up 0.8 pct to 1-mth closing high

* U.S. manufacturing data boosts European equities

* Financial shares feature among top gainers

By Atul Prakash

LONDON, July 1 (Reuters) - European shares hit a one-month high on Friday to record their best week in 10 months after U.S. manufacturing sector growth showed a pick-up in June, raising hopes that the recovery in the world's largest economy remained on track.

The macroeconomic numbers and continued positive sentiment after the successful passing of key austerity votes in Greece earlier in the week helped banks feature among the top gainers, with the sector index rising 2.8 percent.

The Thomson Reuters Peripheral Eurozone Banks index gained 3.5 percent, Greek banks jumped 5.3 percent, and Greek shares rose 2.3 percent.

The FTSEurofirst 300 index of top European shares ended 0.8 percent firmer at 1,119.36 points, the highest close in one month. After falling for eight straight weeks, the index rose 3.6 percent this week, its best performance in 10 months.

Growth in U.S. manufacturing posted a surprise gain in June, according to the Institute for Supply Management, contrasting with Europe and Asia where manufacturing activity lost steam for a second month as interest rate rises there began to bite.

"The ISM data comes at a time when markets feel some relief after the passage of two successful votes in Greece. It fits well into the current mood of relief," said Tammo Greetfeld, equity strategist at UniCredit in Munich.

"However, it remains to be seen whether a soft patch in the U.S. economy is really over."

An 8.5-percent fall to two-month lows in the Euro STOXX 50 volatility index , one of Europe's main barometers of market sentiment, suggested a rise in demand for riskier assets.

Analysts said the market got some temporary relief following Friday's U.S. economic figures and on growing belief that Greece would avert an immediate debt default, but questions remained about the government's ability to implement unpopular austerity measures.

"Recent development in Greece is short-term good news and should drive the market upward," said Sebastien Lemonnier, European equity portfolio manager at Tocqueville Finance, which manages 2 billion euros ($2.84 billion).

"Stock market valuation is not excessive and rates are low, which are also good arguments for continuous market development. Nevertheless, investors should not get too optimistic as mid to long-term clouds remain," he said.

Nomura suggested investors should buy Credit Agricole versus the European banking index on grounds the bank could re-rate relative to the sector as the Greek default was averted for now.

Hendrik Leber, managing partner at ACATIS Investment, which manages 1.2 billion euros, said they had slightly increased their Greek exposure on Friday because, at least for the next 12 months, Greece had been rescued.

Insurers were also in demand, with the sector index up 1.3 percent and Aviva rising 1.7 percent.

Across Europe, Britain's FTSE 100 , Germany's DAX and France's CAC 40 rose 0.6 to 0.7 percent.

TECHNICAL OUTLOOK

The Euro STOXX 50 , the euro zone's blue-chip index, was up 1 percent at 2,875.67 points.

Technical analysts said the index found clear support in the form of its March lows at around 2,718 points and the recent positive reaction has given it the impetus for a bounce.

The index has retraced more than 50 percent of the decline from a high in early May and would target 2,890 where it formed an intermediate top on May 19, which would be a 61.8 percent Fibonacci retracement.

"The recent volatility looks set to continue for now and a run up to 2,910 is not out of the question in the near term," said Bill McNamara, technical analyst at Charles Stanley.

Citigroup's European equity strategists said they expected equities to rally in the fourth quarter, citing reduced uncertainty over global economic growth in the next few months and equity hedge funds trying to make up for a weak first-half performance before the end of the year.

Lothar Mentel, chief investment officer at Octopus Investments, which manages 2.5 billion pounds ($4 billion), said a positive earnings reporting season and a third-quarter rebound in global economic activity should see equities make more gains.

(Additional reporting by Dominic Lau; Editing by David Hulmes)

============================================================ For rolling updates on what is moving European shares please click on ============================================================ For pan-Europeanmarket data and news, click on codes in brackets: European Equities speed guide................... FTSEurofirst 300 index.............................. STOXX Europe index.................................. Top 10 STOXX sectors........................... Top 10 EUROSTOXX sectors...................... Top 10 Eurofirst 300 sectors................... Top 25 European pct gainers....................... Top 25 European pct losers........................

Main stock markets: Dow Jones............... Wall Street report ..... Nikkei 225............. Tokyo report............ FTSE 100............... London report........... Xetra DAX............. CAC-40............... World Indices.....................................<0#.INDEX> Reuters survey of world bourse outlook......... Western European IPO diary......................... European Asset Allocation........................ Reuters News at a Glance: Equities................. Main currency report:.................................

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