Southern bourses drive up European shares after Spanish auction

Thu Feb 7, 2013 12:32pm GMT

* FTSEurofirst 300 up 0.1 pct, Euro STOXX 50 up 0.5 pct

* Spanish, Italian shares outperform after bond auction

* Earnings picture remains mixed

By Francesco Canepa

LONDON, Feb 7 (Reuters) - European shares edged higher on Thursday, led by southern indexes, as a better-than-expected Spanish bond sale helped calm investor nerves about the euro zone periphery and added momentum to a small technical rebound.

Spain's Ibex, up 0.9 percent, was the best performing national index in western Europe, followed by a 0.8 percent stronger Italian FTSE MIB, after healthy demand at a sovereign debt auction in Madrid soothed concerns that political uncertainty in the region would drive up borrowing costs.

Both indexes had fallen by 6 percent and 4 percent in the previous five sessions as investors fretted about a spreading corruption scandal in Spain and uncertain elections in Italy, where former Prime Minister Silvio Berlusconi has been gaining grounds in the polls on an anti-austerity platform.

The spread between German bond yields and those offered by Italian and Spanish notes tightened, a sign of greater confidence in the southern countries' finances.

The euro zone Euro STOXX 50 rose 12.43 points, or 0.5 percent to 2,629.69 points at 1158 GMT after shedding 33.86 points on Wednesday.

The index was finding technical support after closing above 2,611 points, its May and September 2012 top, in the previous session, in a sign some investors were still prepared to buy on dips.

"The Spanish auction has given us a boost and, crucially, the index has held above support, so we're seeing a technical rebound," a trader in Milan said.

The trader expected markets to trade sideways until the Italian elections on Feb. 24, with any sign that centre left politicians were forming a coalition excluding Berlusconi likely boosting Italian shares.

He added some investors had gone back to buying Italian shares when the spread tightened and selling them when it widened, a strategy that had generally been abandoned in the latter part of last year, when a bond-buying programme unveiled by the European Central Bank capped spreads.

The ECB is seen holding interest rates on Thursday, with the announcement due at 1245 GMT.

But all eyes will be on President Mario Draghi's press conference starting at 1330 GMT, where he was likely to face a grilling over the ECB's sensitivity to the euro's recent sharp rally, as well as over an Italian banking scandal.

Akshay Krishnan, senior research analyst for global macro strategies at Stenham Asset Management, said investors were likely to start worrying about the impact of a strong euro on corporate earnings if the single currency, trading at around 1.356 against the dollar on Thursday, were to approach $1.40.

MIXED EARNINGS

The European earnings season has so far been mixed.

Skanska, the Nordic region's biggest builder, rose 6.9 percent on Thursday as it reported higher-than-expected fourth quarter profits and gave an optimistic outlook for this year.

It topped the pan-European FTSEurofirst 300 index, which was up 0.1 percent.

Oil and gas group Statoil also rose - up 2.5 percent - after unveiling strong results and a dividend hike.

But French pharmaceutical group Sanofi fell 2.5 percent after unveiling a disappointing outlook.

With just over a fifth of the European earnings season now behind us, 38 percent of companies in the pan-European STOXX 600 index have missed consensus estimates, Starmine data showed.

The lacklustre earnings picture and rising concerns about Italy and Spain have led some investors to book their profits on a rally that has seen the Euro STOXX 50 rise 34 percent between June 2012 and the end of last month.

"We've been taking profit and tweaking out portfolio from the more cyclical (part of the equity markets) to the more defensives, and holding a little bit of cash," Oliver Walling, investment director at Octopus said.

He expected the rally to resume after the dip, barring an escalation in the Spanish government crisis or a victory for Berlusconi in the Italian election.

"Our expectations are that a pullback of 2-3 percent would be an opportunity to come back into the market."