European shares lifted by gains in telecom stocks

Tue Jan 8, 2013 12:22pm GMT

* FTSEurofirst 300 up 0.2 pct, lifted by telecom stocks

* Euro STOXX 50 rises 0.3 pct

* Goldman sees meagre Q1 gains but rally to pick up later

By Sudip Kar-Gupta

LONDON, Jan 8 (Reuters) - Gains in telecom stocks drove European shares higher on Tuesday, although some strategists saw meagre gains at best for equities in the first quarter due to political and economic uncertainty.

The pan-European FTSEurofirst 300 index was up by 0.2 percent to 1,163.36 points by around midday, pushing it close to a 22-month high of 1,167.24 points reached last week.

The euro zone's blue-chip Euro STOXX 50 index also advanced by 0.3 percent to 2,703.24 points.

Goldman Sachs strategists expected that nagging worries over the United States' debt situation and the euro zone's sovereign debt crisis, would limit gains on European stock markets for the first quarter of this year.

Goldman Sachs forecast a 1 percent first quarter gain for the pan-European STOXX 600 index, which was up by 0.1 percent to 287 points.

"We have a relatively shallow profile of returns over the next three and six months," it wrote in a research note, adding however that the STOXX 600 should still rally to end 2013 at 310 points.

"This partly reflects the potential we see for a pause after such a strong rally in stock markets, but also acknowledges the weak profile for GDP (gross domestic product) growth in both the U.S. and Europe in H1 2013," it added.

French brokerage Cheuvreux expected European stocks to retreat in the first quarter of the year.

However, Michel Juvet, chief investment officer at Swiss bank Bordier, expected solid gains for equities in 2013. He favoured European shares over U.S. equities but preferred Japanese stocks to either of them on valuation grounds.

Juvet said investors were increasingly moving out of bonds and into equities, since injections of liquidity and the cutting of interest rates by central banks had hit returns on bonds and cash, whereas stocks offer more via dividend payouts.

"We are increasingly bullish. There is no more space to make money on bonds, and if you want to make money, you have to move into equities," he said.

VODAFONE BOOST TELECOMS

U.S. politicians remain divided over how to deal with the country's debt and fiscal situation, although Goldman Sachs expected equity markets to gradually rally as the global economy strengthened over the course of the year.

The STOXX 600 European telecoms index was the best-performing European equity sector.

The index rose 1 percent on the back of gains at Vodafone , which added the most points to the FTSEurofirst 300 after fresh speculation that U.S company Verizon could buy Vodafone's stake in Verizon Wireless.

According to technical analysis, the FTSEurofirst 300 and Euro STOXX 50 indexes are both in what is referred to as "overbought" territory - indicating that both indexes may edge lower in the near term.

Both the FTSEurofirst 300 and Euro STOXX 50 are at around the 70 point mark on a relative strength index (RSI). A reading above 70 indicates that an index is "overbought" while under 30 indicates it is "oversold".

However, the FTSEurofirst 300 and Euro STOXX are also both trading above their 200-day simple moving average levels - an indicator that is used by some traders to point towards a market making further gains in the long term.

"Trend followers will still be in bullish mode. There aren't really any bearish signals out there," said Central Markets senior broker Joe Neighbour.