Euro zone shares rise as Ifo sends German stocks to 5-yr high

Fri Jan 25, 2013 10:02am GMT

* Euro STOXX 50 up 0.6 pct

* Strong Ifo survey sends Dax to 5-year high

* FTSEurofirst 300 up 0.1 pct, trims gains as UK data disappoints

* Nokia down 3.9 pct as UBS cuts target, Samsung eyes mkt shrinkage

By Francesco Canepa

LONDON, Jan 25 (Reuters) - German shares led euro zone bourses higher on Friday as a closely watched sentiment indicator beat expectations, helping a key regionwide index extend recent gains to a new 18-month high.

Germany's surprisingly strong Ifo business climate index for January built on a string of solid economic data out of Europe's largest economy, including the ZEW survey earlier this week.

It helped Frankfurt's Dax index rise 0.9 percent to a 5-year high, while the euro zone's Euro STOXX 50 index rose 0.6 to 2,738.28 at 0937 GMT.

The Euro STOXX 50 edged above technical resistance around 2,722, corresponding to the 100 percent Fibonacci projection of a rally in the second half of 2011, around which the index has hovered for the better part of this month.

"We've been hugging the resistance for several weeks now and that really shows the lack of sellers," Anders Soderberg, chief technical analyst at SEB in Stockholm.

"I think we're going to see one more high within this sequence before we make a more profound correction."

He set 2,835 points, which is the 78.6 percent Fibonacci retracement of the decline in 2011, as the next resistance.

When the pullback materialises, Soderberg expects the index to head towards a trend line broken in mid-November, currently in the 2,585 region, or further down to a 2,425 low hit in November.

Curbing gains on the index was Finnish handset maker Nokia , down 5.6 percent. It extended a selloff in the previous session as UBS cut its estimates for the firm after it axed its annual dividend payment for the first time against falling sales.

Also weighing on the handset maker are outlook comments from market leader Samsung Electronics, which said it expects the global smartphone market to shrink in the first quarter from the seasonally strong fourth quarter.

The broader FTSEurofirst 300 index of pan-European shares was up 0.1 percent at 1,171.83 points, having trimmed gains after data showing a bigger than expected contraction in the British economy.

The index is up around 27 percent since late July as crisis-fighting measures from global central banks have allayed concerns of a euro zone break-up and global recession, driving down bond yields and pushing investors towards higher-yielding equities.

TAKING PROFIT

The sharp rally had driven up valuation multiples, leading some investors to consider taking profits on their European equity holdings given that earnings momentum, while it was improving, remained in negative territory.

The MSCI Europe index traded at 11.7 times its expected earnings for the next 12 months, a level last seen in 2010.

"The tail risk has been removed but that has been reflected broadly in equity markets," Stewart Richardson, chief investment office of RMG Wealth Management.

"As a result, to see much more upside from here you'd have to see a good level of economic and therefore corporate earnings growth in Europe. And we don't expect that in the short term."

Richardson started to take profit on his equity holdings one and a half weeks ago, spotting signs of fatigue on some key indexes, and expected markets to retrace part of their recent rally in the next 6-7 weeks.

He has brought his European equity holdings to minimum levels, while he was "neutral" on shares listed in the United States, where economic momentum has been improving.

"We think there could be better opportunities to buy equities on a 5 or 7 percent correction from here," he added.

The S&P 500, a U.S. benchmark watched by global investors, has traded in "overbought" territory since Jan. 16, based on its 14-day exponential Relative Strength Index, a momentum indicator.

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