* FTSEurofirst 300 up 0.2 pct, Euro STOXX 50 down 0.3 pct
* Profit taking hits banks after strong start to 2013
* Go ‘long CAC 40/short DAX’, SocGen strategists recommend
* Worries brew about impact of potential currency war
By Blaise Robinson
PARIS, Jan 23 (Reuters) - European shares inched higher on Wednesday, moving back towards a near two-year high hit recently, although a bout of profit taking on bank and insurance shares limited the market’s rise.
Corporate results were in the spotlight, with shares of Unilever gaining 3.1 percent to a record high after the Anglo-Dutch consumer goods group posted better-than-expected sales.
Novartis added 4.1 percent after the Swiss pharmaceuticals group unveiled a reassuring sales growth forecast.
The FTSEurofirst 300 index of top European shares closed 0.2 percent higher at 1,167.65 points, just a few points below a peak of 1,170.29 points hit two weeks ago, a level not seen since early 2011.
However, the euro zone’s blue chip Euro STOXX 50 index fell 0.3 percent to 2,708.28 points, dragged down by a fall in financial shares after lofty gains so far this year.
Banco Popolare fell 4.1 percent, Credit Agricole lost 2.5 percent and Aegon shed 2.2 percent.
Despite the day’s losses, the STOXX euro zone banking index is still up 10 percent in 2013, by far the best sector performance.
“The newsflow on the political and macro side is very thin, so there’s a bit of hesitation to chase the market higher and we’re seeing some rotation between sectors,” Saxo Banque senior sales trader Alexandre Baradez said.
“We need some kind of big positive catalyst, better-than-expected Apple results for instance, or good macro data.”
U.S. tech major Apple was due to report quarterly results later on Wednesday.
Around Europe, UK’s FTSE 100 index ended up 0.3 percent and Germany’s DAX index closed 0.2 percent higher, whereas France’s CAC 40 dipped 0.4 percent, and Italy’s FTSE MIB dropped 0.8 percent.
Following the DAX’s outperformance last year, Societe Generale strategists recommend a ‘long/short’ pairs trade with a long position on the CAC and a short position on the DAX to take advantage of the combination of more attractive valuation levels for French stocks and the likelihood of a further drop in the risk premium in Europe.
“Valuations-wise, the French market appeared more depressed than the German one, on the basis of cyclically adjusted valuation ratios,” the strategists wrote in a note.
While the DAX has almost reached 2007 levels, the CAC is still about 40 percent below its 2007 highs.
Some analysts, however, say Germany is still attractive and see other pockets of value in European equities.
Investors have been scooping up European shares in the past two months - with the Euro STOXX 50 surging 12 percent since mid-November - as fears about a potential break-up of the euro zone abated while global macroeconomic data improved.
But the rally has lost steam in the past week, as investors await further confirmation from macro data and from companies that the worst of Europe’s economic crisis is over.
“There’s also a bit of nervousness coming from the sabre-rattling on the forex side,” Saxo’s Baradez said.
“Investors are worrying about the risk of a currency war and the impact that it could have on the equity rally.”
A number of central bankers have recently spoken out over the risk of competitive devaluations as policymakers in countries such as Japan and the United States have been taking aggressive action to reflate their economies.
Concerns about a currency war escalated on Tuesday when the Bank of Japan, bowing to domestic political pressure to act on growth, doubled its inflation target to 2 percent and backed it with open-ended asset purchases to pump money into the economy.
“A currency war would bring volatility to European companies’ results - just think of all the exporters which have a big chunk of their sales in U.S. dollars - and it would force investors to review their regional allocation. So it’s definitely a big risk for stocks,” said David Thebault, head of quantitative sales trading at Global Equities.
“All in all, it’s time to be more selective in the stocks we pick, and it’s time to buy volatility to protect the portfolios. Volatility has fallen so much, but there are still plenty of risks out there.”