European shares hold near multi-year highs

Mon Feb 4, 2013 9:31am GMT

* FTSEurofirst 300 up 0.1 percent
    * Telecoms hit by div worries, Voda downgrade
    * Basic resources supported by China data
    * Suez Environment lifted by HSBC upgrade

    By David Brett
    LONDON, Feb 4 (Reuters) - European shares were flat to
slightly higher early on Monday, supported by Wall Street's rise
to a five-year peak on Friday, although short-term gains looked
stretched as major indexes hovered near multi-year highs.
    By 0854 GMT, the FTSEurofirst 300 was up 0.34 of a
point at 1,168.42 points, although the UK's FTSE 100 was
down 0.3 percent at 6,334 and Germany's DAX was 0.1
percent lower at 7,832.
    "European markets have been surprisingly robust. U.S.
markets enjoyed a decent close. We are seeing some very clear
signs of bearish divergence but at the end of the day we keep
breaking higher and investors keep buying the dips," Gerry
Celaya, strategist at Red Tower Research, said.
    He said the DAX's 2007 all-time high of 8,151 was in sight
unless the index started breaking below 7,600, while a near-term
target for the FTSE 100 was at 6,400.
    "The trend remains higher highs and higher lows and it's one
that is difficult to fight," Celaya said.
    According to EPFR Global, equity funds attracted another
$18.7 billion during the final week of January, fuelling talk of
a long-awaited 'great rotation' out of fixed income and into
stocks.
    But with European shares trading at 12 times
price-to-earnings - post-credit crisis highs - Deutsche Bank
said despite improving macro data investors were looking for a
recovery in corporate earnings to support further gains.
    "It seems that investors are finding a rising equity market
more uncomfortable than a falling one. We target 315 on the
Stoxx 600 based on 12.5 times forward and 6 percent earnings
growth," Deutsche said in a note.
    Despite 67 percent of European firms so far meeting or
beating fourth-quarter (Q4) expectations, year-on-year reported
Q4 earnings have contracted by 11.4 percent, according to
Thomson Reuters Starmine data.
    
    SOUTHERN EUROPE SUFFERS
    At a regional level Spain's Ibex, down 0.6 percent,
and Italy's FTSEMIB, down 1.1 percent, were the major
laggards as political instability there posed a threat to the
growth outlook for the euro zone region. 
 
    "Rising political uncertainty could weigh on confidence and
economic activity in the short term. But not all risk is to the
downside. Were political uncertainty to be resolved positively,
there is room for a return to moderate economic growth in the
second half of 2013," Deutsche bank said.
    Telecoms shed 0.5 percent with the sector dragged
down by concerns over dividend cuts and with heavyweight mobile
communications firm Vodafone falling 1.8 percent after
Citi downgraded the stock to "neutral" after its recent rally.
    Basic resources and oil and gas stocks,
however, edged higher after data showed China's increasingly
important services sector rose for the fourth straight month in
January. The slim increase though added to evidence that the
recovery in the world's second-largest economy remains a modest
one. 
    Top gainer was Suez Environment, which climbed 4.8
percent after HSBC upgraded the French water and waste group  to
"overweight" ahead of results due on Feb. 14.