October 27, 2017 / 7:33 AM / a year ago

European shares hit five-month high; Spain hurt by Catalonia vote

LONDON/MILAN (Reuters) - European shares reached a five-month high overall on Friday, but Spanish stocks fell after Catalonia’s parliament declared independence.

Spain's IBEX .IBEX dropped 1.5 percent, making it the worst-performing major index, and the IBEX banking index .IBEXIB fell 2.4 percent.

The declines came as Spain’s central government prepared to impose direct rule over Catalonia. The region’s declaration of independence appeared to be a futile gesture, but the moves on both sides took Spain’s political crisis to a new and possibly dangerous level.

“We have already seen Spain dial down its expectations for growth this year as a result of the crisis. With both sides leaning towards extremes, things could get rockier for investors,” Neil Wilson, senior market analyst at ETX Capital, said in a note.

The broader market performed better. The pan-European STOXX 600 index closed up 0.6 percent and the euro zone STOXX 50 .STOXX50E posted its ninth straight week of gains, reaching its highest level since August 2015. Germany's export-oriented DAX index .GDAXI rose 0.6 percent to a record high.

On Thursday, the European Central Bank took a step towards tightening monetary policy after years of loose money. But it promised years of stimulus and even left the door open to backtracking.

“European equities will benefit from the continuation of ample financial conditions, with strong GDP growth in the fourth quarter expected to help further corporate earnings gains,” said Sandrine Perret, European strategist at Credit Suisse. “Germany could benefit in particular.”

The DAX was supported by gains in Volkswagen (VOWG_p.DE), which rose 4.5 percent after posting results that Jefferies analysts said were “strong all around” .

UBS (UBSG.S) gained as much as 2 percent. The world’s largest private bank reported net profit increased 14 percent in the third quarter, but it kept a cautious outlook for the rest of 2017, citing political and monetary policy uncertainty.

The stock later pared some gains and ended 0.8 percent lower.

“UBS reported relatively solid results, but we also see some shadows. We think that the significant beat on adjusted EBT (earnings before tax) level is of rather low quality and investors might dislike a notable deterioration of net new assets dynamic in WM unit,” Baader Helvea said in a note.

Elsewhere, Sweden’s Kindred Group (KINDsdb.ST) hit a 22-month high after reporting a record quarter.

Tech stocks .SX8P gained 1.2 percent to their highest level since January 2002, following upbeat earnings from Alphabet, Microsoft and Amazon.com.

Gemalto (GTO.AS) rose 8.3 percent. The digital security company posted healthy results after issuing four profit warnings in the past year.

The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, October 26, 2017. REUTERS/Staff/Remote

So far this year, Europe’s tech sector has outperformed the Nasdaq in the United States in dollar terms. Chipmakers ams (AMS.S) and STMicroelectronics (STM.MI) have soared 196.4 percent and 85 percent respectively in 2017.

Eutelsat (ETL.PA), however, posted one of the biggest losses on the STOXX, sliding 9.4 percent after reporting lower revenues. SES (SESFd.PA) dropped 14.9 percent after a third-quarter miss .

According to Thomson Reuters data, 34 percent of MSCI Europe companies have reported results so far, with earnings beats at 54 percent and misses at 36 percent. Revenue beats were 52 percent and misses 48 percent.

Reporting by Danilo Masoni and Kit Rees, editing by Larry King

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