U.S. data lifts European shares to 22-month highs

Fri Jan 4, 2013 6:03pm GMT

* FTSEurofirst 300 index ends 0.4 pct higher

* Euro STOXX 50 up 0.3 pct, may rise 7 pct in H1

* Transocean leads market as settles oil spill charges

By Atul Prakash

LONDON, Jan 4 (Reuters) - European shares set a 22-month high on Friday, buoyed by supportive data and led by rig contractor Transocean, which agreed to settle U.S. government charges over BP's Gulf of Mexico oil spill.

Charts indicated the stock market's uptrend remained intact despite a sell-off earlier in the session following concerns about the U.S. Federal Reserve's quantitative easing programme, and could gain nearly 7 percent in the next three to six months.

The FTSEurofirst 300 index ended 0.4 percent higher at 1,167.24 points, the highest close since early 2011. It is already up 2.8 percent this year, fuelled by a U.S. budget deal. It rose 13 percent last year and is up 23 percent from a low in June 2012.

"You have got a reduction in the tail risks that have been worrying people. Lower risks, combined with a likely upside earnings potential, make us positive on the market," Graham Bishop, senior equity strategist at Exane BNP Paribas, said.

Bishop recommended being "long" on cyclical sectors such as banks, mining and industrials. He said the risks of a U.S. "fiscal cliff", a Chinese hard landing and a breakdown of Europe had diminished following strong actions by the authorities, adding the fourth-quarter earnings season should be slightly better because the macroeconomic situation had been improving.

Latest data showed the vast U.S. services sector grew at its fastest pace in 10 months in December, boosted by a rise in new orders, while U.S. jobs outside the farming sector grew by 155,000 last month, slightly higher than analysts' expectations.

"We maintain our more positive outlook for 2013," said Oliver Wallin, investment director at Octopus Investments, which manages nearly $5 billion.

"There is plenty to be encouraged about and we feel the big tail risks that haunted investors through 2012 have faded somewhat. The stage is now set for a more encouraging year ahead as hopes for global growth build."

Among individual movers, Transcocean rose 5.9 percent after it agreed to pay $1.4 billion to settle U.S. government charges over the oil spill, admitting that its crew on the Deepwater Horizon was partly responsible. BP stock, meanwhile, rose 2.7 percent.

TECHNICALS POSITIVE

The stock market's technical outlook remained positive after recent strong gains. The euro STOXX 50 index rose 0.3 percent to 2,709.35 points, with analysts anticipating new highs.

Lynnden Branigan, technical analyst at Barclays Capital, said the index was in a near term consolidation phase, with the lower end of a price gap on the charts between Dec. 31 and the first trading day of 2012 seen providing strong support.

"The market is looking particularly strong and the bias is currently on the upside. We could find the index trading sideways for a few days before pushing to new highs," he said, adding it could touch the 2,890 level, last hit in July 2011, over the next three to six months.

Among sectoral gainers, healthcare stocks topped the list. The STOXX Europe 600 healthcare index rose 0.8 percent, led by Belgian biotech firm Thrombogenics which climbed 3.3 percent after the group said it would charge $3,950 per dose at the U.S. launch of its eye-treatment product Jetrea.