European shares spurred on by earnings and macro data

Last Updated: Thu, Nov 01, 2012 17:30 hrs

* FTSEurofirst up 1.2 percent

* BT soothes outlook worries

* Lloyds gains as bad debts fall

* BofA ML upgrade boosts Richemont and luxury goods stocks

* Asia, U.S. data helps sentiment

By David Brett

LONDON, Nov 1 (Reuters) - Investors set aside growth worries as European shares clawed back the previous session's losses on Thursday, buoyed by corporate earnings and better macro economic data in China and the United States.

The FTSEurofirst closed up 13.61 points, or 1.2 percent, at 1,109.99, having fallen 0.6 percent on Wednesday.

Telecoms and financials were among the top gainers after results from BT Group, Lloyds Banking Group and Legal & General lifted sentiment in their respective sectors.

Telecoms rose 1.4 percent with BT Group accounting for much of that gain as the UK-listed telecoms firm climbed 7 percent on relief that cost cutting measures helped the company protect its earnings outlook.

Some 56 percent of European companies have so far beaten or met expectations in the current quarter, although earnings estimates for the fourth quarter have been cut by an average 1.2 percent on those companies that have reported, according to Thomson Reuters Starmine data, reflecting some outlook concerns.

"Based on the very recent evidence market valuations can absorb a little bit of a tick down in earnings estimations. Maybe the market is ahead of the analysts on this one," Paul Kavanagh, market strategist at Killik & Co, said.

European shares trade on a 12-month forward price-to-earnings (PE) ratio of 11.5 times, below their 10-year average of around 13.5 times, according to Thomson Reuters data.

Lloyds Banking Group, which trades on a PE of 11 times, rallied 8.3 percent as progress in the bank's recovery plan overshadowed the increased cost of correcting past wrongdoing.

The UK lender posted a drop in third-quarter bad debts, although it took another 1 billion pound ($1.6 billion) hit to compensate customers mis-sold loan insurance.

Pay-TV group BSkyB added 0.7 percent and Royal Dutch Shell rose 2.5 percent after their respective results.

UK insurer Legal & General gained 4.5 percent after its sales rose 6 percent to 1.42 billion pounds in the third-quarter, beating expectations.

Revenue beats have not matched earnings in Europe so far with 49 percent companines missing revenue expectations, and analysts have revised forecasts down by an average 1.5 percent for the fourth-quarter.

Concerns over revenues has seen the luxury goods sector come under pressure of late following downbeat reporting from LVMH and Burberry.

But the sector recovered all its recent losses on Thursday with Richemont, up 4.9 percent, leading the revival as BofA Merrill Lynch upgraded the watchmaker to "buy" from "neutral".

The investment bank said Richemont remains one of the fastest growing companies in its peer group due to above average exposure to Asia and room for margin improvement.


Luxury goods firms also got a boost after data overnight showed big Asian economies were slowly picking up after a year spent battling against global headwinds.

There was some good data in the U.S. too which pointed to a slow healing in the labor market, while manufacturing picked up modestly in October, which lifted sentiment ahead of non farm payrolls due out on Friday.

The pick-up in activity, particularly in China, increased appetite for European Automakers with BMW up 3 percent.

The sector has been under pressure from waning demand in Europe, which sees no sign of abating with a downturn in UK manufacturing highlighting recovery risks.

Worries over the broader global economy has kept the FTSEurofirst within a tight 40 point range since early September when central banks acted to prevent the financial system from collapsing.

Analsysts at Shore Capital recommended investors "sell" equities, worries that a Eurozone depression maybe accompanied by a U.S. recession in the first-half 2013.

Investors continue to punish those companies that disappoint with their earnings with heavyweight energy firm BG Group falling 4 percent and adding to previous session's losses as analysts continue to cut forecasts after results.

More from Sify: